US-China tensions rise again

Investors focussed on China during the Asian session of trading as various headlines added to the tensions between both China and the US to drag shares and futures lower. Hong Kong was the biggest drag on markets after Beijing looked set to impose a new security law on the city after the uprising last year. This was met by comments from President Trump stating the US would react "very strongly" to any move.

It was yet another sign that the US will continue to ramp up its overall offensive on China. Washington has continually blamed China for the Coronavirus pandemic, and last week blocked any chip supplies from the US to Chinese tech giant Huawei as well as passed legislation to make it harder for any Chinese firms to list shares on exchanges in the US.

Currency markets have been fairly stable overnight despite China also stating they would not be setting a GDP target for the year for the first time in decades after it pledged to pump more money into the system to help stimulate growth. The lack of a target being set is an acceptance that the Chinese economy will get nowhere near the usual targets of around 7%, even with a recovery towards the end of the year.

The Yen saw minimal movement despite the Bank of Japan announcing further stimulus measures at an emergency rate setting meeting. Governor Koroda launched a ¥30 trillion lending package aimed at small businesses that are struggling to stay afloat during the crisis. Combined with a previous lending program and its government and corporate bond buying the BOJ have now added ¥75 trillion to help the economy while the government have added ¥117 trillion. The move had been widely anticipated by the market so saw little movement in Yen currency pairs.

This morning we have already seen retail sales released for the UK with numbers coming in slightly worse than expected at -22% YoY and -18.1% MoM. The poor numbers saw Sterling come under pressure across the board. Sales of clothing were one of the worst hit as crashing by 50.2% compared to March.

Every sector apart from food sales slumped lower while of the proportion of sales that did take place 30.7% more of them took place online. With lockdown set to ease further in just over a week it remains to be seen if many retailers can afford to reopen their shops when it does. Marks & Spencer have already warned that the way we shop could have changed forever, so the big question will be whether high street retailers reopen at all when social distancing means they are forced to not let as many customers into their shops.

As we approach Friday oil prices remain stable, stocks look set to open lower for Europe and the US but markets will be nervous after we've seen an incredibly volatile week.