Asian stocks were broadly lower as tension flared between the US and China over the origin of the coronavirus pandemic, while oil prices tumbled as traders fretted over rapidly filling global storage capacity.
Hong Kong’s benchmark Hang Seng index dropped 4 per cent on Monday morning, while South Korea’s Kospi index fell 2.7 per cent. Markets in Japan and mainland China were shut for holidays.
Oil benchmarks also got off to a poor start for the week, hit by persisting worries about oversupply and inadequate storage. West Texas Intermediate, the US marker, was down 7.6 per cent at $18.28 a barrel in Asia trading while Brent crude, the international benchmark, dropped 2 per cent to $25.91.
Futures markets tipped the S&P 500 to drop 0.7 per cent when trading begins on Wall Street later on Monday, while in the UK the FTSE 100 was expected to fall 0.4 per cent.
The latest declines for global equities came after Mike Pompeo, US secretary of state, on Sunday reiterated US government claims linking the coronavirus outbreak to a laboratory in Wuhan, China, without providing any evidence. China has denied that the virus came from the lab.
In a television interview, Mr Pompeo also said China was blocking access to information and refusing to co-operate with overseas scientists trying to develop a vaccine.
On Friday, the S&P 500 shed 2.8 per cent after US President Donald Trump threatened to use tariffs against Beijing, escalating his attack on China over the origins of the public health crisis, and as investors assessed the corporate impact of the coronavirus pandemic after Amazon warned of higher costs to protect workers.
With US-China friction re-emerging, the offshore renminbi weakened as much as 0.3 per cent against the US dollar to Rmb7.1561 — the lowest level for the Chinese currency’s less regulated exchange rate in 45 days. Onshore trading, which is more tightly controlled by China’s central bank, was closed due to Monday’s holiday.
Robert Carnell, chief China economist at ING, said the return of trade tensions was weighing on the Chinese currency as the relative stability provided by last year’s “phase one” trade deal came under threat.
“It is possible that the US administration feels emboldened to restart the trade rhetoric given the rally stocks have undergone in recent weeks,” Mr Carnell said. “If so, Friday’s S&P 500 sell-off comes as a reminder that the underlying drivers for markets have not changed.”
The decline in oil prices, which followed their first weekly gain in a month, came as optimism buoyed by output cuts began to slip again.
Last month US oil prices collapsed into negative territory for the first time as the rising cost of increasingly scarce storage pushed producers to pay buyers to take product off their hands.
Signs of risk aversion were still prevalent on Monday, with a $500m oil exchange traded fund in Hong Kong saying that its broker had blocked it from increasing its holdings of crude oil futures.
Analysts at Citi warned that the “worst is likely yet to come, given signs of global storage reaching tank tops even as a demand recovery starts”.
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May 04, 2020 at 01:44PM
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Oil and Asia stocks drop as US-China tension flares - Financial Times
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