Monday 1 June 2020 2:45 pm

Markets live: FTSE 100 gains fade on US-China tensions as Wall Street wobbles

The FTSE 100 pared some of its gains amid simmering tensions between the US and China over Beijing’s crackdown on semi-autonomous Hong Kong.

Despite the concerns, US President Donald Trump stopped short of ripping up the US-China trade deal over China’s actions in the city-state.

However, stocks surrendered some of their earlier gains as reports suggested China may stop buying US agricultural goods. Wall Street was set to open lower.

Read more: Exclusive: Financial services firms unlikely to return to the ‘old normal’

The UK’s blue-chip index was 0.7 per cent higher heading at 2:30pm, at 6,116 points. It had risen as much as 1.7 per cent in the morning session.

Europe’s continent-wide Stoxx 600 index had climbed 0.8 per cent. France’s CAC 40 was up 1.3 per cent while German markets were closed.

The dollar fell as investors sold the safe-haven asset in favour of stocks. It was down 0.2 per cent on an index as protests over police brutality raged across the country. Meanwhile, the pound rose 0.3 per cent to $1.239.

Investors’ spirits were high in Europe after a speech by Trump on Friday fell short of traders’ worst fears.

Traders thought the President might slap sanctions on China in retaliation for Beijing’s move to apply a security law in Hong Kong. 

Read more: The City View: Trump, China and the pandemic – with Todd Buchholz, former White House Director of Economic Policy

Trump ramped up the rhetoric. But he did not signal any intent to turn his back on the trade deal reached by the two sides at the start of this year.

Neil Wilson, chief market analyst at Markets.com, said that Trump calmed “market nerves [as he] held something back and did not reignite the trade war”.

Wall Street dips amid protests and China tensions

US markets opened lower this afternoon as the combination of country-wide protests and tensions with China kept investors anxious.

The Dow Jones fell 40.12 points, or 0.2 per cent, at the open to 25,342. The S&P 500 fell 11.46 points, or 0.4 per cent, to 3,032.

Despite the falls, stocks remain at a three-month time as the US gradually begins to unlock after the coronavirus crisis.

However, Bloomberg and other outlets cited sources who cast doubt over progress on a US-China trade deal. That led investors to ease off on buying today.

The sources said that China has asked its state-owned firms to pause purchases of soybeans and pork from the US. This unnerved some investors as Chinese purchases were a key part of the January deal.

It comes as tensions between Beijing and Washington reach fever-pitch. China’s move to apply a security law in the semi-autonomous city of Hong Kong has riled the US and countries around the world, including the UK.

The law could bring an end to Hong Kong’s special freedoms under the “one country, two systems” form of government in place since the 1990s.

Read more: UK urges China to reconsider Hong Kong security law

Wilson said: “US-China tensions are expected to deteriorate over the coming months as Trump doubles down ahead of the presidential election.”

Investors were also spooked by fiery protests that raged across the US overnight. They were in response to the killing of black man George Floyd by a white police officer.

Retailers lift FTSE 100

The government’s plan to reopen non-essential retail stores from the middle of the month boosted the FTSE 100.

Primark-owner Associated British Foods was the biggest riser. Its shares jumped eight per cent after it announced it was seeking to open all of its Primark stores in England by 15 June. Retailer Next was also in the top 20 FTSE 100 performers.

Joshua Mahony, senior market analyst at trading platform IG, said: ‘The FTSE 100 is enjoying a reversal of Friday’s pessimism, with high-risk recovery stocks coming back into prominence.”

Read more: Eurozone manufacturing shows tentative signs of recovery in May

“Travel-associated stocks such as IAG, Rolls-Royce, and Easyjet are taking off once again, with the sector likely to remain bullish in the absence of a second wave [of coronavirus infections].”

British Airways-owner IAG, cruise firm Carnival, and engine-maker Rolls Royce jumped more than five per cent. Easyjet was three per cent higher.

Manufacturing data a mixed bag

Meanwhile, the Eurozone and UK reported more dire manufacturing data this morning.

While factories saw their fortunes improve after April’s lockdown, May’s continuing restrictions kept output well in contraction territory.

Read more: UK manufacturing downturn continues despite signs of life

Jeremy Thomson-Cook, chief economist at financial services firm Equals, said: “There is little sign of a recovery in the UK’s manufacturing sector yet.”

But Chinese survey data encouraged FTSE 100 investors. It showed that China’s manufacturing sector returned to growth in May.

Asian stocks pushed firmly higher overnight. China’s CSI 300 blue-chip index rose 2.7 per cent to hit a three-month high. Hong Kong jumped 3.5 per cent after a torrid week that saw protests return to the city.

Read more: Cruise firm Carnival set for the drop in FTSE 100 reshuffle

Fiona Cincotta, market analyst at Gain Capital, said: “Traders are buying into riskier assets whilst rotating out of the safe haven US dollar.”

The rise in sterling came after a dire May in which it was the worst performing currency in the G10.

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