The Fight between China & Hong Kong exacerbates the U.S.-China tensions, discusses Fiona Cincotta.
Stocks in Asia fell sharply overnight and European bourses have opened on the back foot as escalating geopolitical tensions take center stage.
China is planning a new, controversial security bill, which will be inserted directly into Hong Kong’s mini constitution, bypassing the territory’s Legislative Council. This legal show of force threatens to open old wounds and reignite the pro-democracy demonstrations which mired the financial hub and weighed on the economy at the turn of the year. President Trump has been quick to respond, warning China over such action and threatening sanctions.
The United States and China have been on a collision course for several days. Today’s report that China is considering limiting freedom in the financial hub of Hong Kong appears to the straw that broke the camel’s back.
China will remain very much in focus. Today marks the start of the week-long Chinese annual parliament, which sees China’s senior officials deliver their plans for a whole range of issues, including defense diplomacy and relations with the United States.
The annual Parliament comes at a time when U.S.-Sino relations have worsened significantly following the outbreak of Coronavirus.
China drops GDP target
The parliament is expected to take a somber tone, with China already dropping its GDP target for the first time and pledging additional spending as its economy takes a hammering from the Covid-19 outbreak. The Chinese economy contracted 6.8% in Q1, its first contraction in decades.
Oil plunges 5%
Crude oil has dropped 5% in early trade, snapping an impressive six-session winning streak on the back of worsening U.S.-China relations and China’s commission of a GDP target. Despite WTI heading back towards support at $30, it remains on target to gain 9% on the week.
GBP unfazed by grim retail sales
The British pound is showing impressive resilience in the face of dire retail sales data. Retail sales slumped by a record breaking 18.1% month in April, worse than the 16% decline forecast. On an annual basis, retail sales plunged 22.6% worse than the -22.2% expected.
The data made for grim reading. However, the pound was unfazed, holding onto its gains versus the euro and maintaining its -0.1% decline versus the U.S. Dollar, finding support at $1.22. The data comes following better than expected service sector and manufacturing PMI’s in the previous session.
Dire data has been firmly priced in. Pound traders are more interested in the easing of lockdown restrictions and any headaches that Brexit will bring ahead of the key deadline next month.
FTSE levels to watch
The FTSE is trading -1.7% lower, dropping through the key 6000 level. It trades below its 20- and 50-period moving average on the four-hour chart.
Immediate support can be seen at 5907 prior to strong resistance at 5665.
Support can be seen at 5935.
Fiona Cincotta is a MarketAnalyst for Currency Live
