By Joanne Chiu and Anna Hirtenstein
Global stock markets and oil prices fell Monday as U.S.-China tensions escalated over blame for the possible origin of the coronavirus pandemic.
Futures tied to the S&P 500 retreated 0.5%, suggesting U.S. shares could fall Monday. In Europe, the pan-continental Stoxx Europe 600 fell 2.1%, playing catch-up after most European markets were closed Friday for the May 1 holiday.
The Trump administration stepped up assertions that the new coronavirus originated at a laboratory in the Chinese city of Wuhan, with Secretary of State Mike Pompeo saying Sunday that he has seen "enormous evidence" for this. The White House will release a "conclusive" report on the topic, according to President Trump.
Investors are taking the increase in U.S.-China tensions seriously, said Sebastien Galy, a macro strategist at Nordea Asset Management.
"The last escalation was pretty detrimental for equity markets," he said, referring to the selloff in mid-2019 at the height of the U.S.-China trade war. "A de-escalation process can take weeks."
In premarket trading, travel stocks fell after Warren Buffett said over the weekend that he has sold all of his holdings in the U.S. airline industry. Delta Air Lines declined 10%, United Airlines Holdings slid 11% and American Airlines Group was down 10.6%. Southwest Airlines also slipped 9.4%.
Benchmarks in Asia declined, with Hong Kong's Hang Seng Index, which was closed for the previous two sessions, playing catch-up to lose 4.2%. South Korea's Kospi Composite fell more than 2.5%. Markets in mainland China and Japan were closed for holidays.
U.S. crude-oil futures for delivery in June fell 2.2% to $19.34 a barrel, while Brent crude, the global benchmark, declined 0.8% to $26.23.
Although the Organization of the Petroleum Exporting Countries and other nations have started implementing crude output cuts, the fall in energy demand resulting from the decline in economic activity still vastly outweighs the change in supply, said Bjarne Schieldrop, chief commodities analyst at Nordic bank SEB.
"We're still running a massive surplus" of oil, he said.
Kerry Craig, global-market strategist at J.P. Morgan Asset Management, said a deteriorating earnings outlook had yet to be reflected in analyst consensus forecasts, which for the U.S. market for 2021 suggest higher earnings than in 2019.
"It's quite an optimistic scenario in our view," he said. Some investors were happy to trim positions after a strong rally since the market troughed in March, he added.
The dollar strengthened, with the ICE U.S. dollar index rising 0.2% as investors sought safety in haven assets. The yield on benchmark 10-year Treasury notes fell to 0.608% from 0.641% Friday. Yields fall as prices rise. Gold rose 0.9% to trade at $1,716.80 an ounce.
Investors will have plenty of economic data to scrutinize this week, including trade figures from China due Thursday and Friday's U.S. employment report, which is likely to show heavy job losses and skyrocketing unemployment for April.
A release of purchasing managers indexes Monday for several Western European countries showed that coronavirus lockdowns sent manufacturing activity to all-time lows in Germany, France, Spain and Italy in April.
France's stock market was among the biggest losers in the region Monday, with its CAC 40 index declining nearly 4%, the most in over a month. It was weighed down by luxury, oil and industrial stocks that took a beating on rising concerns about Chinese demand. LVMH, which owns brands such as fashion label Louis Vuitton and Moet champagne, slumped 4.2%.
Shares in industrial group Thyssenkrupp plunged 13.3% after an internal letter to staff warned it will have less cash left over from the sale of its elevator business than previously thought as the pandemic is eating into its remaining businesses. Thyssenkrupp agreed to sell its elevator business for EUR17.2 billion ($18.8 billion) in February, a deal that is expected to close this year.
Tyson Foods fell 5.5% in premarket trading after releasing an earnings report that showed its quarterly sales and earnings per share missed estimates. The meat processing giant said the coronavirus has impacted its productivity and raised its costs.
Earnings are also due Monday from insurer American International Group after the market closes.
Write to Joanne Chiu at firstname.lastname@example.org and Anna Hirtenstein at email@example.com