Risk
Asian stocks are down sharply today after China reluctantly ordered the US to close its consular office in Chengdu. In China, the Shanghai composite dropped by 3.90% while the Hang Seng index dropped by more than 2.2%. Elsewhere, in Asia-Pacific, the Nikkei 225 dropped by 0.58% while the ASX 200 index is down by 1.16%.
The decline happened a few hours after Mike Pompeo, the US secretary of the state delivered a sharp rebuke to China. In the speech at the Nixon memorial, he said that 50 years of US and China collaboration had failed. He failed short of supporting a leadership change in the country. Meanwhile, China ordered the US to close its consulate office in Chengdu. The office has about 200 employees, with most of them being from China.
In its statement, China said that its decision was justified because the US closed its embassy in Houston. The country also asked the US to rescind its decision and normalise the relationship. Therefore, the Hang Seng, Nikkei 225, and other indices have fallen because investors are waiting for a response from the United States. The chart below shows how the key indices have fallen.
The futures market indicate that the DAX index, CAC 40, FTSE 100, and other indices in Europe will open lower today. The three futures are down by 0.30%, 1%, and 1.10%, respectively. These indices will also react to more earnings data from Europe and the US.
Among the notable European firms that are releasing their earnings today are Land Securities, Pearson, EasyJet, Centrica, Schlumberger, and Thales, among others. The chart below shows the performance of the DAX index, CAC 40, and FTSE 100.
Gold price jumped in overnight trading as investors rushed to safe-haven assets as the US and China tensions escalated. The price also rose after Mark Mobius, the renowned emerging market investor made the case for investing in gold at the current levels. Equally, the decision by UBS to upgrade its target for gold to $2,000 helped push the price higher. Gold price has gained by more than 5% in the past five days as shown below.
The US dollar index (DXY) declined to the lowest level this week as the number of coronavirus cases continued to jump in the US. Also, the differences in congress about a new stimulus package put the dollar in the defensive. The dollar has fallen against other key currencies like euro, Japanese yen, and the Swiss franc.