As China-US tensions escalated, global equities took a beating Friday, while stalled stimulus talks in Washington sparked concerns for the economy as the dollar dropped lower.
Lingering fears over the effect of fresh coronavirus outbreaks on companies have helped cause big profit-taking, overshadowing a batch of bright data across Europe.
“Trading week is a sour finish,” AJ Bell investment director Russ Mould said.
European indexes at the close were as weak as two per cent, while Wall Street stocks endured a second consecutive red day.
Earlier in Asia, Shanghai and Hong Kong plunged as relations between the two superpowers of the world took another bad turn when China ordered the closing of the American consulate in Chengdu in retaliation for the United States shutting down this week’s Houston diplomatic mission to Beijing.
The standoff is the latest in a series of problems-like Hong Kong, coronavirus and Huawei-that have significantly escalated superpower ties.
According to traders, financial markets were also also reeling from Thursday’s announcement of a increase in new jobless claims in the US, which sparked concerns about any potential economic recovery there.
Hopes that the data will encourage US policymakers to move ahead with fresh recovery initiatives have been thwarted by Republicans and the White House ‘s failure to decide on a new relief plan.
Elsewhere, Haven ‘s asset gold soared for the first time since late 2011 within a spitting distance of $1,900, fuelled by economic turmoil, geopolitical tensions and monetary tightening in the Federal Reserve, which has weakened the dollar.
The greenback resumed its decline against the euro and other currencies and may be primed for more weakening, according to Kathy Lien from BK Asset Management.
Next week, the currency could be in for further uncertainty with the expiry of US supplementary unemployment insurance, the announcement of GDP figures for the second quarter, and a monetary policy meeting for the Federal Reserve, Lien said.
A surprisingly bad GDP figure “could send lower-plunging equities and currencies,” while Fed Chair Jerome Powell is expected to continue adopting a dovish line.
“The big problem is negative rates-any talk of that being an option for the dollar would bruise,” Lien said. “We expect the greenback to prolong their slide before and after the FOMC, no matter what.”