Global markets dive as the US ratchets up tensions with China over the coronavirus
- Stocks fell across the board on Monday after the US ramped up tensions with China and continued to blame the origin of the coronavirus on a lab in the city of Wuhan.
- Although markets were closed in China and Japan Monday, stocks in Hong Kong plunged, aided by news that the territory's economy shrank by almost 9% in the first quarter of the year.
- European stocks also dropped, with the pan-European Stoxx 50 losing more than 4% by mid-morning.
- "If Trump continues with this stance of blaming China and remains determined to punish Beijing for this — as per his recent narrative— a "Mayday" type of situation could be the likely outcome for the global economy."
- Follow global market moves live with Markets Insider.
Stocks fell on Monday as tensions between the US and China racheted back up after senior Trump administration officials claiming that the coronavirus pandemic originated in a lab in Wuhan, and the president sent numerous anti-China tweets.
Asian markets fell first, with Hong Kong's Hang Seng index down more than 4% at the close Monday.
European stocks followed suit, having opened higher but fell in the early hours of trading, with major indexes dropping as much as 4.5%. Most continental European markets were shut last week on Friday to celebrate Labor Day.
The negative sentiment comes as the US increasingly looks to place the burden of blame for the spread of the coronavirus on China, with one analyst noting that President Trump is likely to "beat on the Chinese as hard as he can without actually going to war."
Here's the market roundup as of 10.30 a.m. BST (5.30 a.m. ET):
- Several Asian indexes fell sharply, with Hong Kong's Hang Seng down 4%, South Korea's KOSPI down 2.7%. Chinese stock markets remained closed, as did the Nikkei in Japan.
- European equities broadly fell. Germany's DAX was down 3.9%, the broad Euro Stoxx 50 down 4.3% and France's CAC 40 down 4.5%. Britain's FTSE 100 was relatively strong comparatively, down just 0.6%.
- US stocks are poised for a lower open. Futures underlying the Dow Jones Industrial Average fell 1.5%, the S&P 500 fell 1.3% and the Nasdaq fell 1.1%.
- Oil prices fell with West Texas Intermediate down 7.5% at $18.21, and Brent crude down 3.5% at $25.65.
- Gold rose 0.2% to $1,701. Bitcoin fell about 2.6% to roughly $8,670.
US-China tensions ramp up
Markets fell after US Secretary of State Mike Pompeo said told ABC on Sunday "there is enormous evidence" that the coronavirus pandemic originated in a lab in the city of Wuhan.
"We said from the very beginning this is a virus that originated from Wuhan China. We took a lot of grief for that from the outset but I think the whole world can see that now," Pompeo said.
Pompeo's allegations were the latest in a series of anti-China statements from White House officials, as the administration looks to apportion blame for the pandemic.
Reuters reported on Monday the Trump administration is looking to remove global supply chains from China as it weighs the possibility of imposing fresh tariffs on China to penalize the country for its handling of the pandemic.
Analysts were quick to note the impact the tensions are having on global markets.
Naeem Aslam, chief market analyst at Avatrade, said: "If Trump continues with this stance of blaming China and remains determined to punish Beijing for this — as per his recent narrative— a "Mayday" type of situation could be the likely outcome for the global economy."
Neil Wilson, market analyst at Markets.com, said: "Whilst monetary and fiscal stimulus sustained a strong rally through April – the best monthly gain for Wall Street since 1987 – it's harder to see how it can continue to spur gains for equity markets."
Wilson added: "This is an election year so I'd expect Trump to beat on the Chinese as hard as he can without actually going to war. Trade Wars 2.0 will be worse than the original."
But Aslam thinks the possibility of having a vaccine by the end of the year could offset any market impact from US-China tensions.
"If the possibility of having a vaccine became a reality by the end of this year, it would surely support market optimism."
Gilead's experimental antiviral called remdesivir was approved for emergency use in the US on Friday, after a trial showed patients on the drug recovered 31% faster compared to patients who were put on a placebo.
"This is because it reduces the chances of a second-coronavirus wave having the same detrimental impact on the global economy as the first one," Aslam said.
Analysts point to a rise in gold prices
Aslam said ongoing tensions could increase the demand for gold, another safe-haven asset.
"The safe-haven bet, buying gold, is back in demand and the price of the shining metal is trading higher today. Given the fact that tensions have resurfaced between the US and China, investors are likely to play safe and include gold in their portfolios."
He added: "Fear of trade war usually pushes investors towards safety bets and gold sits at the top of this ladder. No one wants to see a hostile situation surging but the US officials are on course to play with fire."
Losses were also seen in both the US and international oil markets, after they had recovered last week following days of volatility.
West Texas Intermediate is trading around $18.35 a barrel, about 6% lower. The price of Brent, the international benchmark, fell less and is trading just shy of $26 a barrel, some 3% lower.
After dropping into negative territory two weeks ago, oil has remained volatile, although prices have risen in recent days. Concerns, however, are mounting that the June oil contract could turn negative the closer it moves to expiration.
Aslam said: "Investors are concerned about the storage issues despite the fact that we have seen some serious voluntary production cut by the US Shale oil producers over the last week. The possibility of an intense sell-off of West Texas Crude remains a possibility."
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