US equities were weaker Thursday, the S&P500 closing 0.8% lower after similar losses in Europe. US10Y yields slipped 0.1bp to 0.67%, though oil again managed an increase, up 1.1%. China-US tensions continue to influence sentiment while the unavoidable smorgasbord of dreary economic data and early warning indicators were flashing and sullying the landscape. Still, after brief peeks below 2400 amid the inter-day gloom, the S&P 500 added 50 points to the green into the close.
US equities fell amid mounting signs that President Donald Trump will make his tough-on-China stance an essential element of his re-election bid, and US unemployment figures showed another 2.44 million seek benefits. Crude oil rebounded intraday while gold climbed off the mat.
Oil is set to rise for the fourth week as output cuts by the world's top producers begin to erode the supply glut caused by coronavirus lockdowns.
But Asian stocks looked set for a cautious start on Friday as rising tension between the US and China compounded investor worries about the pace of the economic recovery from the coronavirus pandemic.
A horrible risk for markets is that much of the attention from today's NPC will turn to Hong Kong. The agenda includes an item that would mean the government will tighten its grip over the special administrative region, which could potentially reignite the protests that wracked the city last year. But even more worrisome is the global backlash, especially with the US-China hawks circling overhead. A denouncement by the White House, which will almost certainly happen, could exacerbate already tenuous US-China relations and trigger a global backlash that Trump seems to be pinning his hopes on. Indeed, it’s starting to look like a US-China summer of discontent in the making.
So far, China's response has been relatively tame despite Trump's daily goading. That might be so that policymakers can focus on the NPC, but there’s always the possibility of a firmer response. For instance, the recently expanded US tech restrictions may lead to similar actions. If not in fact, then in spirit, However, if history repeats, these tit-for-tat tussles can develop their own momentum, spiraling into an ever-larger confrontation at a time when the world desperately requires some stability.
For once, the devil is in the detail rather than the headline US PMI number. New orders across the service and manufacturing sectors saw the second sharpest fall since the financial crisis with foreign demand muted. The fall in new export orders was almost on a par with April's declines. There was a split in the outlook, with some expecting a pick-up later in the year while others thought it would take a longer time for conditions to normalize.
The May Philly Fed business conditions index came in at -43.1, lower than forecasts for -40.0 and after -56.6. US weekly initial jobless claims were broadly in line, but worryingly, perhaps, continuing claims picked up and were higher than expectations. There were 25.073 mn, compared with forecasts for 24.25 mn, and after 22.548 mn. There’s no need to panic just yet, though: the data covered the period to May 9 when only a few states had started to reopen.
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