Escalating tensions between the US and China point to a subdued start to Australian share trade following falls on Wall Street.
ASX SPI200 index futures eased seven points or 0.1 per cent, signalling uncertainty after a 23-point decline yesterday dented a four-session 244-point rally on the S&P/ASX 200.
US stocks retreated from ten-week highs after another 2.4 million Americans filed for unemployment benefits and the White House ramped up its war of words against China. The S&P 500 declined 23 points or 0.78 per cent. The Dow shed 102 points or 0.41 per cent. The Nasdaq gave up 91 points or 0.97 per cent.
Australian stocks came under pressure yesterday after US President Donald Trump accused China of peddling disinformation and propaganda, and failing to stop the COVID-19 pandemic. Tensions escalated overnight after a Chinese proposal to extend its power over Hong Kong by introducing a new sedition law was countered by a US threat to sanction Chinese officials if the proposed bill passes into law. The latest dispute comes a day after the Senate passed legislation that would prevent many Chinese companies from listing in the US. Overnight, US-listed Chinese giants Alibaba and JD.com fell 2.1 per cent and 3.2 per cent, respectively.
“It seems like China is going to be used as a punching bag for the upcoming [US presidential] elections,” Bob Shea, CEO at TrimTabs Asset Management in New York, told Reuters. “The White House has resolved to itself that it is more effective to swing at China than to salvage what was going to already be a watered-down Phase 1 trade deal.”
The escalating dispute is particularly delicate for Australia because it pits the nation’s top trading partner, China, against traditional ally and number three trading partner, the US. Trump’s Secretary of State Mike Pompeo yesterday criticised China for threatening Australia with punitive tariffs for calling for an inquiry into the origins of the virus. “We stand with Australia,” he said. The Chinese state media mouthpiece, the Global Times, this morning called for Australia to “stop blindly following the US”.
Wall Street also had to absorb news that another 2.4 million Americans sought jobless benefits for the first time last week, bringing the total number of Americans out of work to 38 million. While new claims have declined for seven straight weeks after peaking at 6.9 million in early March, economists looking for signs of a rebound in employment as states reopen were disappointed.
“The easing of lockdowns in many states has not yet resulted in any large-scale recall to work for those currently on temporary layoff,” Paul Ashworth, chief US economist at Capital Economics, wrote. “There is little evidence that the reopening of the economy has, as yet, led to any sudden snap back in employment.”
Amazon hit a new record before easing to a final loss of 2.1 per cent. At a sector level, industrials alone resisted the downtrend, rising 0.2 per cent, Energy, tech, consumer staples, utilities and materials all declined by at least 1 per cent.
BHP’s US-listed stock fell 0.7 per cent and its UK-listed stock 1 per cent. Rio Tinto gave up 1.09 per cent in the US and 1.76 per cent in the UK. The spot price for iron ore landed in China improved $1.85 or 1.9 per cent to US$97.95 a dry ton. Copper dropped 1 per cent on the London Metal Exchange to US$5,363.75 a tonne.
Oil settled at a new ten-week high. Brent crude finished 31 cents or 0.9 per cent ahead at US$36.06 a barrel. The global benchmark has risen almost 43 per cent this month as traders bet on an end to a global glut that drove US prices briefly into negative territory. The US benchmark, West Texas Intermediate, has climbed 80 per cent since the start of the month.
Some of the heat came out of gold as signs of modest improvement in grim European and US economic data convinced some traders the worst of the pandemic has passed. Gold for June delivery fell for the first time in three sessions, settling $30.20 or 1.7 per cent lower at US$1,721.90 an ounce.
The dollar fell 0.5 per cent overnight to 65.64 US cents.