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Business

World equities edge higher despite U.S.-China tensions

NEW YORK (Reuters) – World stocks hovered near three-month highs and safe-haven government bonds inched lower as signs that Europe’s economic downturn has bottomed boosted risk appetite, despite worries over violent protests in the United States and unease over Washington’s standoff with Beijing.

President Donald Trump left a trade deal with China intact Friday despite moving to end Washington’s special treatment for Hong Kong in retaliation for Beijing seeking to impose new security legislation on the city.

China has asked state-owned firms to halt purchases of soybeans and pork from the United States in response, two people familiar with the matter said.

“The Trump rhetoric against China and trade impediments against Hong Kong could have been a lot worse, hence the performance of those markets this morning, which has helped the risk backdrop,” said Chris Bailey, European strategist at wealth manager Raymond James.

MSCI’s gauge of stocks across the globe .MIWD00000PUS gained 0.29% following broad gains in Asia and Europe. The index .MIWD00000PUS is up more than 35% from its March lows.

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In morning trading on Wall Street, the Dow Jones Industrial Average .DJI fell 114.39 points, or 0.45%, to 25,268.72, the S&P 500 .SPX lost 11.9 points, or 0.39%, to 3,032.41 and the Nasdaq Composite .IXIC dropped 24.20 points, or 0.25%, to 9,465.68.

Signs of a rebound from the global coronavirus lockdown helped bolster global equities and push safe haven assets lower. France’s manufacturing activity rose in May as the country began to emerge from a nearly two-month coronavirus lockdown, pulling the sector out of a nosedive that had seen activity hit a record low a month earlier, a survey showed on Monday.

An official business survey from China showed its factory activity grew at a slower pace in May but momentum in the services and construction sectors quickened.

Benchmark 10-year notes US10YT=RR last fell 10/32 in price to yield 0.677%, from 0.644% late on Friday.

Bond investors suspect economies will need massive amounts of central bank support long after they reopen and that is keeping yields super low even as governments borrow much more.

“Current unemployment numbers go far beyond what has been experienced in any post-war recession,” Barclays economist Christian Keller wrote in a note. “To the extent that some sectors may never return to pre-pandemic business-as-usual.”

A weekend of violent U.S. protests over race and policing could present another setback for the economy which was only just emerging from the steepest economic downturn since the Great Depression.

Following poor data on spending and trade out on Friday, the Atlanta Federal Reserve estimated economic output could drop a staggering 51% annualized in the second quarter.

The May jobs report due out on Friday is forecast to show the unemployment rate surged to 19.8%, smashing April’s record 14.7%. Payrolls are expected to drop by 7.4 million, on top of the 20.5 million jobs lost the previous month.

In commodity markets, gold added 0.5% to $1,735 an ounce XAU=. [GOL/]

Tensions between the U.S. and China weighed on oil prices. U.S. crude CLc1 recently fell 2.73% to $34.52 per barrel and Brent LCOc1 was at $37.70, down 0.37% on the day.

(Graphic: Global assets – tmsnrt.rs/2jvdmXl)

(Graphic: Global currencies vs. dollar – tmsnrt.rs/2egbfVh)

(Graphic: Emerging markets – tmsnrt.rs/2ihRugV)

(Graphic: MSCI All Country Wolrd Index Market Cap – tmsnrt.rs/2EmTD6j)

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Business

Stocks slip as investors await Trump's Hong Kong response

NEW YORK (Reuters) – Global stocks fell and safe havens such as bonds and the Japanese yen rallied on Friday as investors awaited Washington’s response to China’s national security law on Hong Kong amid rising tensions between the world’s two biggest economies.

China’s parliament on Thursday passed national security legislation for the city, throwing its freedoms and its function as a finance hub into doubt.

U.S. President Donald Trump said he would hold a news conference on China later on Friday. Trepidation about a further deterioration in Sino-U.S. relations, which have soured considerably through the COVID-19 pandemic, put investors on edge.

U.S. stocks followed European and Asian shares lower. The Dow Jones Industrial Average .DJI fell 180.15 points, or 0.71%, to 25,220.49, the S&P 500 .SPX lost 14.48 points, or 0.48%, to 3,015.25 and the Nasdaq Composite .IXIC dropped 4.66 points, or 0.05%, to 9,364.33.

In Europe, the pan-regional STOXX 600 index lost 1.30% and MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.59%.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.2%. Japan’s Nikkei .N225 retreated from a three-month high and the yen rose to a two-week high of 107.06 against the dollar, while bonds rose.

If the United States no longer thinks Hong Kong is sufficiently autonomous and no longer merits special treatment under U.S. law, the reaction would be a small downdraft, as the market should be expecting that, said Yousef Abbasi, global market strategist at INTL FCStone Financial Inc in New York.

“But if you get further sanctions and something akin to walking back the Phase 1 trade deal, the concern has to be graver because now we have to worry about retaliation from China,” Abbasi said.

The Chinese yuan CNY= weakened in offshore trade. [CNY/]

Hong Kong’s Hang Seng index .HSI declined 0.8% and has lost about 3% in the two weeks since news of China’s security legislation broke. [.HK]

The yield on benchmark 10-year U.S. Treasury notes US10YT=RR fell 4.6 basis points to 0.6624%.

U.S. Federal Reserve Chair Jerome Powell was scheduled to speak at 1100 a.m. EDT/1500 GMT. The market’s focus will be on the central bank’s long-term plans, including the likely restart of large-scale bond-buying.

MAY MARCHES ON

Massive amounts of government stimulus offset reams of grim economic data to prop up stocks in May. The S&P 500 .SPX is up around 4% for the month and on track for its best May since 2009.

A rally in the risk-sensitive Aussie dollar AUD=D3 is slowing, but the currency has gained nearly 2% for the month and sits 20% above March lows.

MSCI’s All Country World Index .MIWD00000PUS, which tracks stocks across 49 countries, is on track for a 3.5% gain this week – its best weekly performance since April.

(GRAPHIC: Recovery on course? – here)

Optimism has grown as countries have lifted lockdowns, spurring hopes for a speedy economic recovery.

The number of Americans seeking jobless benefits fell for an eighth straight week last week and New York has outlined plans for re-opening.

The euro EUR= was headed for its best month since December as the European Union’s 750 billion-euro coronavirus recovery fund fueled optimism about the EU’s political future. [FRX/] It hit a two-month high of $1.1114 and last traded at $1.1119.

The dollar fell 0.366% =USD against a basket of currencies.

Spot gold XAU= added 0.8% to $1,731.92 an ounce. [GOL/]

U.S. crude CLc1 recently fell 0.33% to $33.60 per barrel and Brent LCOc1 was at $34.95, down 0.96% on the day. [O/R]

Both contracts are headed for their biggest monthly gains in years as production cuts and optimism about demand recovery led by China supported prices.

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Business

Europe cheers super-sized stimulus plan, U.S.-China tensions simmer

LONDON (Reuters) – European shares rose for the fourth straight session on Thursday and the euro perched at a two-month high, as businesses returning to work and a 750 billion euro EU stimulus plan outweighed rising U.S.-China tensions.

Asian markets had been subdued overnight after U.S. Secretary of State Mike Pompeo had warned Hong Kong no longer warranted special treatment under U.S. law, but there was no stopping Europe.

Traders diving back into the markets after Wednesday’s EU plan to prop up the bloc’s coronavirus-hit economies pushed the region-wide STOXX 600 index up 1% to its highest since early March.

The euro enjoyed the view at $1.1016, having risen to a two-month high. It also held at the near three-month high it had hit versus the neighbouring Swiss franc the previous day, while the dollar was largely quiet.

Euro zone bond yields were relatively stable too, with Italian borrowing costs – a key European confidence indicator – holding near eight-week lows and safe-haven German Bunds seeing another small sell-off.

“With the release now of the European Commission’s plan for COVID recovery, we see there being room for further positivity in Eurozone risk assets, even while the global sentiment is buffeted by China-related tensions,” Mizuho analysts told clients.

“This feeds directly into our expectations for European risk assets to outperform, which will be further helped by a likely expansion of ECB QE next week.”

Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan had ended flat, having been in positive territory earlier in the day.

Shares in Hong Kong skidded as much 1.75% before ending down a 0.7% as Chinese shares managed to close positive. [.SS]. Japan’s Nikkei had jumped 2.3% though U.S. stock futures lost momentum in Europe to trade only 0.1% higher.

The biggest risk to equities now looks to be the Sino-U.S. relationship, which is likely to worsen after Pompeo had said on Wednesday that China’s plan to impose new security laws in Hong Kong were “only the latest in a series of actions that fundamentally undermine” the city’s autonomy.

“All eyes remain on the U.S.-China relationship,” said Chris Weston, the head of research at Pepperstone, a currency broker. “This is a risk for markets… One questions if the equity markets are too complacent here.”

A punitive U.S. response to China on the issue of Hong Kong could result in a tit-for-tat reaction from Beijing, further straining ties between the world’s two biggest economies and hobbling global growth.

President Donald Trump has said he will announce a response to China’s policies towards Hong Kong later this week.

Yields on 10-year U.S. Treasuries rose slightly to 0.6966%. Although they are up from an all-time low of 0.4980% struck in March, they are still a whopping 120 basis points below highs seen in January.

China’s yuan meanwhile was near a record low of 7.1966 per dollar in international markets due to uncertainty over Hong Kong. In ‘onshore’ trade too, it was nearly at its weakest since the height of the U.S.-China trade war last September.

Commodity markets groaned. U.S. crude futures fell 3.2% to $31.76 a barrel, while Brent crude fell 1.73% to $34.14 per barrel as investors fretted about Trump’s response to China.

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World News

Germany wants to end travel warning for 31 European countries: report

BERLIN (Reuters) – The German government wants to end a travel warning for tourist trips to 31 European countries from June 15 if the coronavirus situation allows, magazine Focus on Tuesday cited dpa news agency as reporting.

It said a paper on European tourism that may be agreed by the cabinet on Wednesday showed the government wanted to allow travel to the 26 other European Union nations and Britain as well as the four non-EU countries in the Schengen passport-free zone – Iceland, Liechtenstein, Norway and Switzerland.

On May 18, Foreign Minister Heiko Maas said Germany was hoping to ease a travel warning on all tourist trips abroad that is in place until June 15.

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World News

More than 40 diagnosed with COVID-19 after Frankfurt church service

FRANKFURT (Reuters) – More than 40 people have tested positive for the novel coronavirus following a church service in Frankfurt, Germany’s financial center, earlier this month, the head of the city’s health department told a news agency on Saturday.

“Most of them are not seriously ill. As far as we know only one person has been admitted to hospital,” Rene Gottschalk told the dpa agency.

The service took place on May 10 at a Baptist church, the department’s deputy chief Antoni Walczok told local newspaper Frankfurter Rundschau. On its website https://www.seidheilig.de the church says it holds services in both German and Russian.

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“The situation is very dynamic,” Walczok told the paper, adding the church did not violate official guidelines aimed at containing the spread of the virus.

Churches in the German state of Hesse, where Frankfurt is located, have been able to hold services since May 1 provided they adhere to official social distancing and hygiene rules.

Frankfurt’s health department was not available for comment outside business hours on Saturday.

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Business

Germany agrees on rescue package for Lufthansa: media

BERLIN (Reuters) – The German government has agreed on final details of a rescue package for airline carrier Lufthansa (LHAG.DE), media reported on Wednesday.

Lufthansa is seeking to tap Germany’s economic stabilisation fund to help it weather the coronavirus pandemic and what is expected to be a protracted travel slump.

The ministers in charge put the finishing touches on the bailout package and a government official was on his way to Frankfurt to seal the deal with airline managers, Der Spiegel magazine reported.

The German finance ministry and the economy ministry both declined to comment. A Lufthansa representative also declined any statement on the media report.

Chancellor Angela Merkel said on Wednesday she expects an agreement on a rescue package for Lufthansa soon, but did not elaborate.

In a separate report, the Handelsblatt newspaper cited government sources as saying Berlin had agreed to a three-stage model involving a total of 9 billion euros ($9.88 billion), including a 3 billion-euro loan from the state-owned KfW bank.

In addition, the government will take a direct stake of 20% in Lufthansa and a convertible bond worth 5% plus one share, with the government gaining two seats on the company’s supervisory board.

The airline said on May 7 it was negotiating a 9 billion-euro bailout with the German government to ensure its future, confirming an earlier Reuters report.

Lufthansa said then that the package included a non-voting capital component, known as a so-called silent participation, a secured loan, and a capital increase which may leave the government with a shareholding of up to 25% plus one share.

The Handelsblatt newspaper said the agreement now had to be approved by the coalition government, which would then give Lufthansa two days to agree.

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Business

Euro gains on EU recovery-fund plan, oil wavers

NEW YORK (Reuters) – The euro and European government debt rallied on Tuesday, lifted by a Franco-German proposal to fund grants for regions hit hardest by the coronavirus pandemic, while oil traded mostly higher on growing demand as countries eased business lockdowns.

A gauge of global equity markets retreated late in the session after Wall Street skidded on a report from medical news website STAT that said Moderna Inc did not provide enough critical data to assess its potential COVID-19 vaccine.

Moderna shares closed down 10.4% after surging 20% on Monday when it said a small-early stage trial showed promising results, news that rallied equity markets around the world.

Gold prices rose as some investors sought the safe-haven asset on recession fears after a 30.2% decline in U.S. housing starts in April, the biggest percentage drop on record.

Permits for future construction tumbled, adding to data showing the pandemic will drive the deepest U.S. economic contraction in the second quarter since the Great Depression.

The euro rose 0.05% to $1.0918, paring gains on the Franco-German plan for a 500 billion euro European Union recovery fund was announced on Monday.

“The Franco-German proposal represents a material step forward towards harnessing joint fiscal capacity to provide sustained fiscal stimulus to support the economic recovery,” said Lee Hardman, currency analyst at MUFG.

Spanish and Portuguese government bond yields fell after a big drop in Italian yields on Monday.

Europe’s STOXX 600 index slipped 0.61% after the worldwide surge in equity markets on Monday. But MSCI’s gauge of stocks across the globe shed 0.21%.

On Wall Street, the Dow Jones Industrial Average fell 390.51 points, or 1.59%, to 24,206.86. The S&P 500 lost 30.97 points, or 1.05%, to 2,922.94 and the Nasdaq Composite dropped 49.72 points, or 0.54%, to 9,185.10.

Federal Reserve Chair Jerome Powell told U.S. lawmakers that the Coronavirus Aid, Relief and Economic Security (CARES) Act passed in March was “critical” to the Fed’s ability to expand credit to offset the economic blow from the coronavirus.

U.S. Treasury yields were lower. The benchmark 10-year yield slid 4.9 basis points to 0.6931%.

Crude oil prices traded higher most of the session but Brent eased toward the end.

U.S. crude rose 68 cents to settle at $32.50 a barrel, while Brent fell 16 cents to settle at $34.65 a barrel.

U.S. gold futures settled 0.6% higher at $1,745.60 an ounce.

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Economy

UPDATE 1-ECB's Lagarde cheers Franco-German EU recovery fund plan

(Adds Lagard quotes, details, context)

PARIS/FRANKFURT, May 18 (Reuters) – A Franco-German proposal for a 500 billion euro ($546 billion) coronavirus recovery fund would bring essential relief to the bloc’s worst-hit nations and demonstrate solidarity, European Central Bank President Christine Lagarde said on Monday.

Closing in on a deal after two months of often bitter talks, the European Union’s biggest powers proposed a fund on Monday that would offer non-repayable grants to EU regions and sectors hit hardest by the pandemic, with the cash borrowed by the bloc as a whole rather than by individual member states.

Although the plan still requires the consent of all EU members, it would be a big step towards debt mutualisation, once a taboo for German governments fearing that their taxpayers might be liable for the fiscal irresponsibility of others.

“The Franco-German proposals are ambitious, targeted and, of course, welcome,” Lagarde said in a joint interview with four European newspapers, after announcement of the plan sent the euro higher and reduced Italian bond yields.

“They pave the way for the European Commission to borrow funds over the long term and, above all, they allow a substantial amount of direct support to be provided to the countries most affected by the crisis,” Lagarde told newspapers Les Echos, Handelsblatt, Corriere della Sera and El Mundo.

Buying 1.1 trillion euros of debt this year, the ECB would be expected to buy any bonds jointly issued by EU members, keeping borrowing costs down and increasing the pool of coveted safe assets.

The euro zone economy is expected to shrink by a tenth this year, and even with many coronavirus restrictions already lifted, the recovery is expected to last well beyond this year.

Reflecting on a recent German Constitutional Court ruling that the ECB exceeded its powers with sovereign bond buys, Lagarde said the German central bank is under obligation to carry out the ECB’s decision.

“According to the Treaty, all national central banks should fully participate in the determination and implementation of monetary policy in the euro area,” she said.

Her comments may foreshadow a legal clash as the German court said the Bundesbank must quit the asset buys unless the ECB can prove they are necessary.

If the ECB fails that test, the Bundesbank is likely to face a conflict between its EU Treaty obligation and a ruling by the nation’s highest court. (Reporting by Laurence Frost, Leigh Thomas and Balazs Koranyi; Editing by Sandra Maler and Dan Grebler)

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Business

Equities slide, bonds rise, on Fed warning of prolonged recession

NEW YORK (Reuters) – Stock markets tumbled on Wednesday as fears about a second wave of coronavirus infections and warnings from Federal Reserve Chairman Jerome Powell that the U.S. faces a “significantly worse” recession than any since World War II weighed on investor sentiment and boosted safe-haven bonds.

Powell’s comments come as parts of the global economy are starting to reopen following a deep freeze aimed at curbing the spread of the virus that has pushed unemployment rates to their highest since the Great Depression. Benchmark equity indexes are up 25% or more since their March lows in anticipation of further government stimulus programs to help the global economy recover.

“Earnings season is largely behind us and we have entered the phase two of COVID-19 as de-confinement of economies begins, and that is creating a lot of uncertainties on a daily basis, which is weighing on markets,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

“We don’t think this is the start of a new correction. Markets went too far, too fast and this is the consolidation.”

MSCI’s gauge of stocks across the globe shed 1.53% following broad losses in Europe and Asia.

In midday trading on Wall Street, the Dow Jones Industrial Average fell 491.31 points, or 2.07%, to 23,273.47, the S&P 500 lost 51.55 points, or 1.80%, to 2,818.57 and the Nasdaq Composite dropped 139.32 points, or 1.55%, to 8,863.23.

Leading U.S. infectious disease expert Anthony Fauci on Tuesday warned lawmakers that a premature lifting of lockdowns could lead to additional outbreaks of the deadly coronavirus, which has killed 80,000 Americans and brought the economy to its knees.

“We now have to see how this reopening plays out and there are a lot of risks to reopening,” said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.

The mood was further soured by proposed legislation by a leading U.S. Republican senator that would authorize President Donald Trump to impose sanctions on China if it fails to give a full account of events leading to the coronavirus outbreak.

Safe-haven assets rose as investors positioned for an extended economic downturn. Benchmark 10-year notes last rose 17/32 in price to yield 0.6379%, from 0.692% late on Tuesday.

Oil markets, which have plummeted this year due to a combination of a collapse in demand and a supply glut, regained some ground on expectations of deeper production cuts.

U.S. crude recently fell 0.89% to $25.55 per barrel and Brent was at $29.65, down 1.1% on the day.

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Business

Asian stocks set to slip on coronavirus fears, vaccine timing

NEW YORK (Reuters) – Asian equities were set to pull back on Wednesday as heightened concerns about coronavirus infections and the timing for a vaccine outweighed the lift from rebounding oil prices and upbeat corporate earnings in Europe.

Leading U.S. infectious disease expert Anthony Fauci on Tuesday warned lawmakers that a premature lifting of lockdowns could lead to additional outbreaks of the deadly coronavirus, which has killed 80,000 Americans and brought the economy to its knees.

“It looks like we’re in for another negative day of trading here in the Asia Pacific region,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “It’s very clear that the containment has done economic damage and the recovery will take years and not weeks,” he said.

Hong Kong’s Hang Seng index futures were up 0.37%, Australian S&P/ASX 200 futures slipped 1.26% and Japan’s Nikkei 225 futures fell 0.05% to be 1.13% below Tuesday’s cash index close.​

U.S. stocks dragged equity benchmarks lower after Fauci’s remarks, who also said that there was unlikely to be a treatment or vaccine in place by late August or early September.

On Wall Street, the Dow Jones Industrial Average fell 1.89%, the S&P 500 lost 2.05% and the Nasdaq Composite dropped 2.06%.

The cautious mood was not helped by proposed legislation by a leading U.S. Republican senator that would authorize President Donald Trump to impose sanctions on China if it fails to give a full account of events leading to the outbreak of the novel coronavirus.

The bill would give the president authority to impose a range of sanctions, including freezing assets, travel bans and visa revocations, as well as restrictions on loans to Chinese businesses by U.S. institutions and bans on U.S. listings by Chinese firms.

Stock markets have rebounded sharply in recent weeks as the spread of the novel coronavirus slowed in some countries in Asia and Europe, while parts of the U.S. economy began to reopen after weeks of lockdowns.

MSCI’s gauge of Asia-Pacific shares outside Japan closed 0.96% lower on Tuesday while its global stock index shed 1.23%.

In commodity markets, oil prices rose after OPEC’s de facto leader, Saudi Arabia, said it would increase supply curbs in June, while other members of the oil-producing group said they want to extend the deep cuts reached in April for a longer period than originally agreed.

U.S. West Texas Intermediate (WTI) crude futures settled at $25.78 a barrel, up $1.64, or 6.8%. Brent crude futures settled at $29.98 a barrel, gaining 35 cents, or 1.2%.

The dollar fell on Tuesday as the mood turned cautious a day ahead of U.S. Federal Reserve Chairman Jerome Powell’s speech on economic issues and as investors weighed the chances of negative U.S. interest rates.

Safe-haven assets such as government bonds moved higher as investors edged away from riskier investments. Benchmark 10-year U.S. Treasury notes last rose 15/32 in price to yield 0.6795.

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