Stocks fall on 'risk of cold war' between US and China over coronavirus

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
A man walks in front of graffiti depicting US President Trump, right, and China's President Xi Jinping kissing each other with face masks, displayed at a wall in the public park Mauerpark in Berlin, Germany, Wednesday, April 29, 2020. (AP Photo/Markus Schreiber)

European stock markets fell on Monday, amid continued tensions between the US and China over the COVID-19 pandemic.

Markets on mainland Europe had been closed on Friday and sold-off sharply as investors’ played catch up. The CAC 40 (^FCHI) was down 4.2% in Paris by mid-afternoon in Europe and the DAX (^GDAXI) was 3.6% lower in Frankfurt. The Euronext 100 (^N100) was down 4%.

The FTSE 100 (^FTSE) had opened down 0.7% in London but was flat by mid-afternon. The market was open last Friday had sold off over 2% during that session as US President Donald Trump threatened to impose tariffs on China for its handling of the pandemic.

Analysts said Monday’s sell-off was driven by the continued tensions between the US and China.

Overnight, US president Donald Trump repeated his unproven claim on Fox News that the virus originated in a lab in Wuhan. Trump said China “made a horrible mistake” and “tried to cover it.”

“The risk of a cold war between the two nations seems to be building,” Deutsche Bank strategist Jim Reid wrote on Monday morning.

“Hinting at a more troubled world order in the future, yesterday US Secretary of State Michael Pompeo said on ABC TV that there was ‘enormous evidence’ to suggest COVID-19 began in a laboratory in Wuhan.

“When you think how nervous markets got about the US/China trade war then if this theme continues you can’t help thinking that the end game is far worse than it would be from a simple trade war.”

Reuters reported on Monday morning that the US are stepping up efforts to remove supply chains from China as Washington weighs fresh tariffs. Trump said overnight tariffs would be the “ultimate punishment” for the COVID-19 pandemic.

US stocks opened lower in New York. The S&P 500 (^GSPC) was down 1%, the Dow Jones (^DJI) slipped 1.4%, and Nasdaq (^IXIC) shed 0.7%.

“Having only recently signed a trade deal with China, just prior to the outbreak of the current pandemic, President Trump caught the markets a little off guard by comments that raised the prospect of raising new tariffs against them on the premise that the virus was their fault, and that they sought to spread it on purpose, or at the very least did little to halt its spread,” said Michael Hewson, chief market analyst at CMC Markets.

Hong Kong’s Hang Seng index (^HSI) shed 3.9%. The Shanghai Composite (000001.SS) in China and Japan’s Nikkei (^N225) were closed.

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