Gains for global stocks were held back on Monday as escalating tension between China and the US weighed against hopes of further economic stimulus.
Beijing has said it will sanction 11 US citizens in response to similar measures from Washington, intensifying the friction between the world’s two largest economies after the introduction of a tough security law on Hong Kong.
US stocks were mixed, leaving benchmarks little changed through the session. The S&P 500 index inched towards its February record high, rising 0.3 per cent by the closing bell, while the tech-heavy Nasdaq Composite slipped 0.4 per cent.
European trading was similarly muted. Both London’s FTSE 100 and Europe’s benchmark Stoxx 600 ended the day 0.3 per cent higher.
Traders were keeping an eye on manoeuvres in Washington and their implications for more US economic support measures. President Donald Trump on Saturday bypassed lawmakers and signed executive orders aimed at cushioning the economic blow from the coronavirus crisis.
Investors have largely brushed off headwinds including rising US-China tensions and stalled negotiations over fiscal support in Washington to push shares higher this month.
Thomas Hempell, head of macro and markets research at Generali Insurance Asset Management, said the strong performance for equities in August showed markets “accounted for the willingness of policymakers to deliver on their responsibility to support economies”.
Mr Trump’s move was particularly significant in that context, he said.
“The risk market still has a bit of legs going forward over the next weeks on global data and policy support,” he added. “Going into autumn, we are more vigilant and prepared to dial back. The rebound in macro data, which has given hopes of a V-shaped recovery, could prove to be an illusion and the recovery will slow down.”
Shares in China’s big tech groups fell for a second session after Washington announced sanctions targeting Beijing late last week, fuelling concerns that the spat between the world’s two biggest economies could broaden further.
Tencent fell another 4.8 per cent in Hong Kong, adding to Friday’s 5.5 per cent loss after the Trump administration said that it would ban US companies from dealing with the Chinese group’s popular WeChat messaging app.
The Hong Kong-listed shares of Alibaba dropped 2.7 per cent, even though the Chinese ecommerce group was not directly affected by the US orders, which also targeted ByteDance, the owner of the popular video app TikTok.
Concerns over the rising temperature between Beijing and Washington have scythed billions of dollars of market value from China’s fast-growing internet companies over the past two trading sessions.
“These actions are pushing forward the China-US decoupling,” said Ken Cheung, a strategist at Mizuho Bank in Hong Kong, referring to the US sanctions.
He said investors were nervous that deepening tension could unravel the so-called phase one trade deal signed between Beijing and Washington at the start of this year, though he added he did not believe the agreement was in any immediate danger.
China’s CSI 300 benchmark of Shanghai and Shenzhen-listed shares reversed earlier losses to gain 0.4 per cent, while Hong Kong’s Hang Seng fell 0.6 per cent following the high-profile detention of media tycoon Jimmy Lai for allegedly breaching the city’s new national security law.
Oil rose after Saudi Arabia’s state energy group Saudi Aramco said on Sunday that it was experiencing a “partial recovery in the energy market”, with chief executive Amin Nasser saying “the worst is likely behind us”. Brent crude, the international benchmark, advanced 0.5 per cent to $44.99 a barrel.
Gold for December delivery settled 0.3 per cent higher to $2,039 a troy ounce.
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