Global Markets Round-up: Stocks Plummet As US-China Tensions Flare Again

Published May 4th, 2020 - 12:30 GMT
Global Markets Round-up: Stocks Plummet As US-China Tensions Flare Again
Markets have remained almost heroically optimistic amid the coronavirus crisis' (Shuttertsock)
Highlights
Stock markets are starting the week in the red with much of Europe heavily so, as many indices trade for the first time since Thursday as a result of the Friday bank holiday.

Tensions between the USA and China over the origins of the coronavirus caused shares to decline across financial markets today. There are growing fears that another trade war could erupt between the two countries. 

Britain's largest companies expect the coronavirus to reduce their sales by more than a fifth this year and are gloomier than during the 2008-09 financial crisis, according to a survey published on Monday by accountants Deloitte. 

Hotel Chocolat has said it has increased its banking facilities to help get it through the coronavirus crisis. The firm said it had agreed a £35million revolving credit facility with Lloyds Bank, replacing a 10 million pounds overdraft.

Food processing giant Tate & Lyle says it expects to beat its financial guidance despite being hit by falling U.S. demand for its sugars and syrups last month as large numbers of businesses remained closed by Covid-19 lockdowns.

Sports Direct and House of Fraser 'asked furloughed managers to work'

Sports Direct and House of Fraser have secretly pressured furloughed managers to come into stores once a week, it has been reported.

The retail chains, owned by billionaire Mike Ashley, allegedly asked managers to return to work voluntarily. It was also claimed they were told not to clock on. 

A bad start to the week for stock markets

Craig Erlam, Senior Market Analyst, OANDA Europe

Stock markets are starting the week in the red with much of Europe heavily so, as many indices trade for the first time since Thursday as a result of the Friday bank holiday.

The FTSE 100 took a hammering on Friday while many of the bourses were closed which is why it's not coming under such heavy fire today. There's some catch-up going on across much of the continent in the aftermath of Trump's comments on potential Chinese tariffs. The last thing we need right now is a resumption of the trade war.

Earnings ended last week on a sour note, with Amazon and Apple adding a bit of gloom to a season that has, to that point, been given a bit of a free pass. Perhaps this is more of a timing issue than an earnings one but it appears to have contributed to the sea of red we're now seeing. More earnings to come this week but we are past the peak.

Virgin Media and O2 in talks to merge

Mobile operator O2 is in talks to merge with Virgin Media in a move that would create one of the UK's largest telecoms and media firms.

Telefonica, O2's Spanish owner, confirmed it is in discussions with Virgin-owner Liberty Global over a deal between the two firms.

It stressed that it is currently in the 'negotiation phase', and it is not guaranteed that the two parties will agree a deal.

FTSE 100 recovers a little before falling to 5,745

Joshua Mahony, Senior Market Analyst at IG:

Today’s FTSE 100 recovery stands in stark contract to the huge declines evident throughout mainland European markets this morning. Coming off the back of a period of optimism at the thought of an economic reopening throughout Europe, we are now seeing fears arise over the potential market reaction if such a move ultimately leads to a second wave and subsequent lockdown.

Without a vaccine, it appears highly likely that leaders have to choose a balance between physical and economic health. While many perceive the UK to be well behind on the fight against the virus, that lag does at least provide the luxury of learning from the experiences of others as Boris Johnson continues to hold off on any major lockdown easing.

Banks inundated with 'bounce back' loans applications

Banks are being flooded with requests for so-called ‘bounce back’ loans from small businesses and sole traders struggling due to the coronavirus outbreak as the scheme launches today.

Designed to offer the smallest UK businesses loans between £2,000 and £50,000, with a ‘standardised’ form with just seven questions to speed up payments, the new scheme is being inundated with requests.

Barclays said it received already around 200 applications in the first minute since its launch this morning, while Lloyds revealed it had been sent 2,000 applications in the first two hours.

The ‘bounce back loans’, which are 100 percent backed by the Government, come as many businesses complained they were not receiving money quickly enough under the Government’s coronavirus business interruption loan scheme designed for small and medium businesses.

Firms won’t have to pay back the bounce back loans during the first year, when the Government will cover interest payments. After the first year, businesses will be charged 2.5 percent interest.

Tui's China office resumes selling domestic package holidays

The Chinese unit of Germany's Tui, the world's biggest tourism group, said it has resumed offering holiday packages in China and the group has urged the European Union to lift travel restrictions in place to curb the coronavirus.

The resumption of business in China, three months after Tui's activities there were halted, is focused on short breaks in the mountains and beach resorts.

Markets have remained almost heroically optimistic amid the coronavirus crisis'

AJ Bell investment director Russ Mould comments on markets so far today:

With the effects of a deadly pandemic continuing to rage, the addition of a renewed trade war between the US and China made for a bitter cocktail for stocks on Monday. 

News that Warren Buffett can’t find anything to buy, as he caught up with Berkshire Hathaway shareholders over the weekend, was hardly an encouraging portent for equities. The investment guru also sold his airline holdings.

The markets have remained almost heroically optimistic amid the coronavirus crisis, bolstered by unprecedented central bank and government support, but a material escalation in tensions between the world’s two largest economies might test even the sunniest of optimists.

Given the societal and economic damage caused by the outbreak, a measure of finger pointing was always likely and it seems to have begun in earnest. 

US-China trade tensions hurt market sentiment

David Madden, Market Analyst at CMC Markets UK, comments on the stock markets this morning:

Stock markets are in the red this morning as trade tensions between the US and China continue to weigh on sentiment. The major eurozone equity markets were closed on Friday for the May Day holiday, but now they are feeling the pressure, which the FTSE 100 had to endure on Friday. President Trump has threatened China with tariffs as he is blaming the Beijing administration for the Covid-19 pandemic.

It is believed by US officials the Chinese government downplayed the severity of the health crisis. Mr Trump is directing his ire at the authorities in Beijing, and it looks as if he is gearing up for another trade spat. The Donald has a presidential election to contest in November, and it seems that he will be picking a fight with China in a bid to appeal to his voter base. 

London markets open flat on 5,763 points amid US-China tensions

London markets opened flat today on 5,763 points as US-China tensions flared up again over the origin of the coronavirus. 

The index of Britain's biggest firms opened on the same number of points as Friday but Rolls Royce tumbled on reports it was considering job cuts to ride out an economic slump caused by the pandemic.

What is the future for the furlough scheme?

Richard Yeomans, an employment specialist and partner at London law firm Addleshaw Goddard, discusses what the future might hold for furloughed workers and businesses, as the economy attempts to pick things back up from the coronavirus outbreak.

Trump: 'Another round of tariffs would be the ‘ultimate punishment’ on China'

Connor Campbell, financial analyst at Spreadex, comments on the trade tensions between the USA and China:

The alarming spike in tension between the US and China, as Donald Trump tries to get his 2020 election campaign back on track by hurling threats at Beijing, sent the markets south early on Monday. Facing a recession of the likes not seen since the Great Depression of the 1930s, the President has gone on the attack in the last week or so. Trump said that another round of tariffs would be the ‘ultimate punishment’ on China, while a ban on the iFund – a government retirement account for ex-military – buying Chinese equities has been floated.

This as Mike Pompeo, joined by Trump, seeded the idea of an international conspiracy in the minds of the American public. The US Secretary of State has claimed that there a ‘significant amount of evidence’ showing the coronavirus pandemic originated in a Chinese laboratory, while, conveniently, declining to provide any of said evidence.

It is a high stakes blame-game, designed to stoke nationalist fire behind Trump heading into November’s presidential election. However, it’s a terrifying strategy that will cost even more jobs and cause another major blow to the economy if it ends up tanking the incredibly fragile US-China trade deals laboriously struck last year.

FTSE fallers: Rolls Royce, airlines, hotels

Rolls Royce shares are in the red after reports it was considering job cuts to weather the coronavirus crisis.

Other fallers include cruise operator Carnival, Holiday Inn owner IHG, airlines easyJet and IAG - all companies badly hit by the pandemic.

Warren Buffett sells all of its airline stocks

Berkshire Hathaway has sold all its airline stocks because of the coronavirus pandemic, but Warren Buffett is telling investors they should still 'bet on America'.

The billionaire investor revealed the conglomerate has offloaded the entirety of its stocks in the US airline industry, waving goodbye to shares in United, American, Southwest and Delta Airlines, during the firm's annual shareholder meeting Saturday. 

'Trade Wars 2.0 will be worse than the original'

Neil Wilson, chief market analyst at Markets.com, comments on the European markets today:

On the plus side, the UK is sketching out how it plans to end the lockdown. On the minus side, it’s going to take a long time to get back to normal. This, in a nutshell, is the problem facing the global economy and it is one reason why equity markets are not finding a straight line back to where they were pre-crisis. 

Indices on mainland Europe are catching up with the losses sustained in London and New York today, having been shut Friday. The DAX retreated 3% on the open to take a look again at 10,500, whilst the FTSE 100 extended losses to trade about 20 points lower. Hong Kong turned sharply lower ahead of its GDP report. 

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. Moreover, US-China tensions are resurfacing as a result of the outbreak, which is weighing on sentiment. 

Donald Trump spoke of a ‘very conclusive’ report on China – the demand for reparations will grow, and trade will suffer as the easiest policy lever for the White House to pull. 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.

Record dip in business confidence over coronavirus

Business leaders have suffered a record drop in confidence during the pandemic and fear the economic recovery will be slow, data suggests. 

Deloitte's survey of 104 finance chiefs last month found that 84 per cent were less optimistic about company prospects, compared with 47 per cent just three months ago – the survey's biggest drop in confidence on record. 

Factories in Asia and Europe badly hit by the lockdown

A raft of manufacturing PMIs for Asia and Europe are being released this morning, showing extent of the economic impact on the manufacturing sector in April. 

Below the one from Spain, showing an 'unprecedented' contraction in the sector. 

Markets drop in Asia on rising China-US tensions over virus

Shares skidded in Asia on Monday as investors eyed rising tensions between the Trump administration and China over the origins and handling of the coronavirus pandemic.

Facing criticism over his handling of the crisis, President Donald Trump has tried to shift the blame to China. Beijing has repeatedly pushed back on U.S. accusations that the outbreak was China´s fault.

Hong Kong's benchmark fell 4% on Monday while the Sensex in India dropped 5.1%. Other regional markets also were lower. Trading was halted for holidays in mainland China, Japan and Thailand.

April's positive sentiment has begun to unravel

Michael Hewson, Chief Market Analyst at CMC Markets UK, comments on the markets' performance so far this month:

In truth it didn’t take much for the positive sentiment that we saw from April begin to unravel at the end of last week. The rally from the March lows had already got a lot of people scratching their heads given how poor recent economic data has already been, with the added concern it is likely to get much worse in the coming weeks.

Having only recently signed a trade deal with China, just prior to the outbreak of the current pandemic, President Trump caught the markets a little off guard by comments that raised the prospect of raising new tariffs against them on the premise that the virus was their fault, and that they sought to spread it on purpose, or at the very least did little to halt its spread.

For several weeks now the prospect of significant monetary, as well as fiscal stimulus, has prompted a decent rebound in equity markets, largely on the basis that any policy missteps on the part of politicians might be kept to a minimum.

2m 'social distancing' will be optional if other precautions in place

Businesses will not have to enforce two-metre 'social distancing' rules when coronavirus lockdown eases - as long as they can show they are keeping staff safe.

The shape of the 'road map' out of the crippling restrictions has started to emerge, with a leaked draft suggesting it will recognise that keeping gaps between workers is not always possible.


© Associated Newspapers Ltd.

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