Morning Note

Hong Kong turmoil risk roils markets

Shares in Hong Kong plunged on fears Beijing’s tough stance will spark fresh pro-democracy protests, potentially leading to the kind of widescale unrest we saw last year.

The Hang Seng slid over 5% as China imposes controversial national security legislation that bypasses local lawmakers. The move was taken as China’s National People’s Congress convenes. Carrie Lam, the Hong Kong chief executive, says the territory will fully cooperate with China.

This is a potentially significant flash point that will stir local protests and will anger the US. At a time of already strained relations between China and the West, this decision will only isolate Beijing even more. Investors will need to add renewed Hong Kong-Beijing tensions into their mix of geopolitical risks, whilst the way it fits into the broader US-China rivalry will be closely watched.

The risk-off tone fed into European trading with the FTSE 100 off almost 2% at 5900 in early trade on Friday.  Asia-focussed banks HSBC and Standard Chartered were among the laggards. UK retail sales plunged 18.1% in April, led by a 50% decline in clothing sales. Online shopping rose to a record 30.7% of all retail – good for the nimbler retailers with good online operations, not so encouraging for the rest.

US stocks closed lower on Thursday, with the S&P 500 down 0.78% to 2,948. Having nudged to the top of their respective ranges, indices are retreating to more comfortable levels for investors given the state of the economic damage and uncertainty over earnings. Futures indicate Wall Street will open lower.

US initial jobless claims came in at 2.4m as expected and was the lowest reading since March. It takes the total jobs lost since the crisis began to almost 39m. Now we need to look at the continuing claims rather than the initial claims counts. It certainly raises hopes the jobs market has bottomed – the bulk of jobs to be lost have already been lost.

As various US states reopen and business gets going again, we ought to see hiring exceed firing. The key will be how swiftly the hiring replaces lost jobs – it’s hard to see the 39m being replaced as quickly as they were lost. Temporary layoffs will become permanent as businesses slowly reopen and find demand down and cash flow a problem.

Data compiled by software company Envestnet Yodlee shows Americans used their stimulus cheques to buy stocks. Middle income earners – those on $35,000 to $70,000 a year – were the main drivers. This chimes with the view that the bounce off the March lows was driven by incremental retail buyers, not a return of positive institutional flow.

The US manufacturing PMI also showed some mild improvement as did the European and UK numbers, but as mentioned yesterday, this was off a very low base and numbers still indicate sharp contraction.

In FX, the dollar is bid as risk-off sentiment rules. EURUSD broke 1.10 yesterday but retreated as it looked to test the 200-day resistance a little above the round number. Cable moved back under 1.22 at 1.2180.

Having rallied Thursday to $35, crude oil (WTI Aug) slipped sharply overnight, breaking the trendline, as China’s NPC decided to scrap its GDP target for 2020. It suggested Beijing is not about to really stimulate infrastructure investment like it has in the past. Markets, in particularly commodities, were looking for more.

Latest Markets.com News

EIA Crude Oil Preview, May 28th: Data to confirm a huge build?

Read More

Equity indices clear big hurdles even as Hong Kong tensions simmer

Read More

FX update: Pound blown off course by Frosty Brexit talks, euro tests 200-day line

Read More

Hong Kong dents optimism but stocks remain on track

Read More

Macron and Merkel’s rescue fund: Europe’s Hamiltonian moment?

Read More

FX strategy: euro, pound push up as dollar offered on risk appetite return

Read More

Leg up: stocks make new ground, travel stocks soar

Read More

Global stocks risk off as Beijing considers new Hong Kong security law

Read More

The European Green Deal and COVID-19 Recovery Package

Read More
Previous
Next

Join Markets.com to Experience Marketsx

Markets.com is the state-of-the-art trading platform provided by Markets.com. As part of the TradeTech Group, a constituent of Playtech, a FTSE 250 listed company, at Markets.com we have deep knowledge of the financial markets and an incredible range of resources to continually raise the bar in the world of financial trading.

Create Account

CySEC (EU)

Products

  • CFD
  • Share Dealing
  • Strategy Builder

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • Negative Balance Protection

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under License no. 092/08 and FSCA under Licence no. 43906.

FSC (GLOBAL)

Products

  • CFD
  • Strategy Builder

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Markets.com, operated by TradeTech Markets (BVI) Limited (“TTMBVI”) Regulated by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

Products

  • CFD
  • Spread Bets
  • Strategy Builder

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • Negative Balance Protection

Markets.com operated by TradeTech Alpha Limited (“TTA”) Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

Products

  • CFD

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Markets.com, operated by Tradetech Markets (Australia) Pty Limited (‘TTMAU”) Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

FSCA (ZA)

Products

  • CFD
  • Strategy Builder

  • Clients’ funds kept in segregated bank accounts
  • Negative Balance Protection

Markets.com, operated by TradeTech Markets (South Africa) (Pty) Limited (“TTMSA”) Regulated by Financial Sector Conduct Authority (‘FSCA’) under the licence no. 46860.

Selecting one of these regulators will display the corresponding information across the entire website. For more information click here.