NEW YORK/LONDON (Reuters) – Oil prices tumbled and global equity markets wavered on Friday as China’s move to impose a new security law on Hong Kong further strained U.S.-Sino relations and clouded economic recovery prospects.
News that China also dropped its annual growth target for the first time added to uncertainty about fallout from the COVID-19 pandemic, boosting safe-haven investments such as U.S. Treasuries US10YT=RR and the dollar.
China said it would impose new national security legislation on Hong Kong, leading U.S. President Donald Trump to warn that Washington would react “very strongly” against any attempt to gain more control over the former British colony.
Emerging market shares slid -2.72%. But stocks in Europe closed mostly flat and on Wall Street traded mixed to higher as investors prepared for a long weekend in the United States, the UK and elsewhere.
After trading lower most of the session, Wall Street trended upward in late trading.
“The market just keeps battling higher, it just wants to go higher,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York. “It’s anticipating improvement and we’ve seen all the bad news.”
Tensions between the world’s two largest economies have risen in recent weeks, with Washington ramping up criticism of China over the origins of the pandemic, raising fears the rhetoric could crimp economic growth.
“You have these doubts over China that is triggering this sell-off in oil, and it’s going to gain steam. If oil sells off, it’s hard to have a strong stock market,” said Ed Moya, senior market analyst at OANDA in New York.
Of major asset classes, crude oil has rebounded the most off the year’s lows on hopes world economies will soon recover from coronavirus-induced business shutdowns, he said, addin that he believed oil’s rally was overdone.
“There’s just too much uncertainty, and that’s going to likely keep on weighing on risk appetite,” Moya said.
MSCI’s all-country world stock index .MIWD00000PUS shed 0.48%, while the pan-European STOXX 600 index lost 0.03%.
On Wall Street, the Dow Jones Industrial Average .DJI fell 42.39 points, or 0.17%, to 24,431.73. The S&P 500 .SPX gained 2.67 points, or 0.09%, to 2,951.18 and the Nasdaq Composite .IXIC added 27.73 points, or 0.3%, to 9,312.61.
Earlier in Asia, Hong Kong’s Hang Seng index .HSI slid more than 5% to a seven-week low, its biggest daily percentage fall since 2015. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 2.7%; Japan’s Nikkei .N225 fell 0.8%.
Analysts said extensive central bank stimulus continues to underpin sentiment and buoy equity markets.
Japan’s central bank unveiled a lending program to channel nearly $280 billion to small businesses hit by the coronavirus. India slashed rates for a second time this year and the European Central Bank, in the minutes from its last meeting, said it was ready to expand emergency bond purchases as early as June.
U.S. crude CLc1 fell 67 cents to settle at $33.25 a barrel, paring about half earlier losses of more than 5%.
Brent LCOc1 settled at $35.13, down 93 cents on the day.
Benchmark 10-year U.S. Treasury yields fell 2.4 basis points to 0.6526% US10YT=RR. Spot gold XAU= added 0.6%.
U.S. gold futures GCv1 settled up 0.8% at $1,735.50 an ounce.
Reporting by Dhara Ranasinghe; Editing by Jane Merriman, Kirsten Donovan, Chizu Nomiyama, Dan Grebler and David Gregorio