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U.S. Stock Futures Slide as China Tensions Flare

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07/24/2020 | 06:31am EDT

By Anna Isaac

U.S. stock futures slid Friday, amid the rising tension between Washington and Beijing that threatens to cloud prospects for trade between the world's two largest economies.

Futures tied to the S&P 500 ticked down 0.3%, putting the S&P 500 index on track to end the week largely flat or with a muted decline after three consecutive weeks of gains.

China on Friday ordered the closure of the U.S. consulate in Chengdu, a city in the southwestern part of the nation, in a tit-for-tat retaliation against Washington's decision to shut down the Chinese consulate in Houston. The closures mark another step in the deterioration of relations between the two nations, which have clashed over trade, technology, handling of the coronavirus epidemic and global influence.

China's major stocks benchmark, the Shanghai Composite Index, fell 3.9% by the close of trading. Hong Kong's Hang Seng Index retreated 2.2%.

"Today's act by China is seen as an actual political retaliation, as opposed to the typical verbal scuffles that had been going on," said Ong Zi Yang, senior macro analyst at FSMOne.com in Singapore. "The escalation in geopolitical tensions has encouraged varying degrees of profit-taking among investors, especially as Chinese equities have rallied quite significantly since the global equities sell-down in March."

Adding to the tensions, Secretary of State Mike Pompeo on Thursday called on the Chinese people to alter the ruling Communist Party's direction, though he stopped shy of explicitly calling for regime change. Such uncompromising rhetoric from Trump administration officials in recent weeks has been accompanied by an uptick in pressure on Beijing, from sanctions to military exercises and indictments.

The downward spiral in the relationship has shown signs of spilling over into trade matters. President Trump told reporters on Thursday that the Phase One-trade deal with China signed in January "means less to me now than it did when I made it." Investor confidence has been shaken by the uptick in tensions, especially as key allies of the U.S. have also started to embrace its harder-edged approach to China.

"The overall tone has become far more hawkish from the U.S. since the passing of the national security in Hong Kong," said Edward Park, deputy chief investment officer at Brooks Macdonald. "The pick up in the U.S.-China tension has broadened out to other developed-world nations including the U.K. and Australia."

U.S. stocks have also been sensitive this week to cues on whether lawmakers will have a new stimulus bill hammered out before their summer break in August. Senate Republicans scrapped their plans to release a proposal for the next coronavirus relief bill Thursday after continued differences with the White House. With the delay, Republicans won't roll out their roughly $1 trillion legislation until next week, further compressing an already tight timeline to reach an agreement with Democrats.

"The road toward an agreement is expected to be bumpy, so markets are taking a breather," said Geoff Yu, senior markets strategist BNY Mellon. "It's important to avoid a sense of a cliff in household expectations. That would be a problem for the U.S. and the rest of the world as well."

Overseas, the pan-continental Stoxx Europe 600 dropped 1.4%.

Earnings updates are expected Friday morning from Honeywell International at 6:30 a.m. ET, and American Express and Verizon Communications at 7:30 a.m.

Data on new-home sales in the U.S. are due at 10 a.m. Sales are expected to have picked up 3.6% in June, a slowdown from May, when pent up demand lifted sales 16.6%.

In bond markets, the yield on the 10-year U.S. Treasury ticked up to 0.590%, from 0.582% Thursday.

In commodities, Brent crude, the global oil benchmark, rose 1.2% to $43.83 a barrel.

--Chong Koh Ping contributed to this article.

Write to Anna Isaac at anna.isaac@wsj.com

 


Stocks mentioned in the article
ChangeLast1st jan.
AMERICAN EXPRESS COMPANY 0.19% 91.24 Delayed Quote.-26.71%
BROOKS MACDONALD GROUP PLC -4.70% 1570 Delayed Quote.-26.81%
CHINESE PEOPLE HOLDINGS COMPANY LIMITED 0.00% 0.053 End-of-day quote.-1.85%
DJ INDUSTRIAL -0.59% 26501.6 Delayed Quote.-7.14%
HANG SENG -2.17% 24073.72 Real-time Quote.-14.60%
HONEYWELL INTERNATIONAL INC. 0.21% 164.95 Delayed Quote.-6.81%
LONDON BRENT OIL 0.53% 37.86 Delayed Quote.-43.09%
NASDAQ 100 -2.62% 11052.94579 Delayed Quote.26.56%
NASDAQ COMP. -2.45% 10911.59093 Delayed Quote.21.61%
S&P 500 -1.21% 3269.96 Delayed Quote.1.21%
S&P/CITIC 300 INDEX 0.03% 4097.16 Delayed Quote.15.36%
S&P/CITIC 50 INDEX 0.02% 4085.34 Delayed Quote.9.32%
STOXX EUROPE 600 0.18% 342.36 Delayed Quote.-17.67%
STOXX EUROPE 600 NR 0.18% 753.21 Delayed Quote.-16.07%
VERIZON COMMUNICATIONS INC. 0.41% 56.99 Delayed Quote.-7.18%
WTI -1.29% 35.72 Delayed Quote.-41.06%
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