Sharp declines in the Hang Seng led to initial weakness in Europe. However, with China likely to pass the contentious national security bill next week, further risk-off sentiment looks likely before long. Elsewhere, ECB minutes point towards further stimulus, to the benefit of European stocks.

  • Stocks regain ground, yet Hong Kong fears remain
  • US-China relationship to deteriorate further if bill is passed
  • European markets rise as ECB minutes signal potential stimulus rise

Efforts to claw back early losses have taken the FTSE 100 back into a more respectable position. Fears over another uprising in Hong Kong have sparked a sharp deterioration in the Hang Seng overnight, with the index suffering the worst one-day decline since 2015. While markets are unimpressed by the prospect of Hong Kong losing what autonomy it has, the real contagion impact comes from the potential repercussions for US-China relations. Coming at a time when markets are looking for that next driver of market sentiment, the prospect of a new battleground for US-China relations isn’t ideal for stocks. The Chinese look set to vote on the Hong Kong bill next week, with sentiment in the US and  Europe likely to be driven by Asia for the short-term.

Mainland European markets have outperformed the UK today, with traders reacting to somewhat expansive comments from the ECB minutes today. With the ECB standing ready to expand their current €750bn bond purchase programme in June, markets are feeling more confident that sufficient support will be provided despite recent concerns. Coming off the back of a Franco-German stimulus plan to fund those nations that are suffering the most, traders are feeling more optimistic about their ability to soften the blow of this crisis.

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