European markets fall as US-China tension derails rebound

London — European stock markets and oil prices fell on Monday as a spat between top US officials and China over the origin of the coronavirus fuelled the fear of a new trade war, derailing a rebound in global markets.

European shares opened down 2.5% with US stock futures trading close to 1% in the red.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.5%, pulled down by Hong Kong where the Hang Seng returned from a two-session holiday with its biggest drop in six weeks.

US secretary of state Mike Pompeo said on Sunday there was “a significant amount of evidence” that the virus emerged from a laboratory in the central Chinese city of Wuhan.

Pompeo did not provide evidence or dispute an earlier US intelligence conclusion that the virus was not manmade.

An editorial in China’s Global Times said he was “bluffing” and called on the US to present its evidence.

“Concern on the potential for another flare-up between the US and China is dominating price action,” RBC strategist Adam Cole said in a morning note.

Simon Black, head of investment management at wealth management firm Dolfin said investors were also adjusting their forecasts over the depth of the economic damage inflicted by the pandemic.

“It’s also the economic reality sinking in,” he said, adding that the rebound of more than 20% from lows hit in March by global equities was likely not sustainable.

Companies listed on the pan-European Stoxx 600 are currently expected to report a 40% decline in earnings in the second quarter.

Manufacturing activity in the eurozone collapsed in April as government-imposed lockdowns to stop the spread of the new coronavirus forced factories to close and consumers to stay indoors, a survey showed on Monday.

“We’ve just come off a rally of hopes, not a rally on fundamentals,” Black said, pointing to the huge monetary and fiscal stimulus pledged by governments and central banks around the world.

Recent economic data paints a dire picture of the global economy after weeks of lockdowns.

In the US, manufacturing plunged to an 11-year low in April, consumer spending collapsed, and about 30.3-million Americans have filed claims for unemployment.

Oil prices fell again, paring last week’s gains, on worries a global oil glut may persist even as coronavirus pandemic lockdowns start to ease.

US West Texas Intermediate (WTI) crude futures fell to $18.66 a barrel while Brent crude futures were down 1.7% at $26, after touching a low of $25.50. Brent rose about 23% last week following three consecutive weeks of losses.

In currency markets, the dollar rose 0.1% to 99.38 against a basket of currencies while the euro was down 0.48% at $1.0930.

The safe-haven yen fell 0.2% to ¥106.72 to the dollar.

Global coronavirus cases have surpassed 3.5-million and deaths have neared a quarter of a million, according to a Reuters tally.

Reuters