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China tensions permeate markets

The FTSE broke below the key 6000 level at the start of Friday’s trading as the worsening of US-China relations, China’s plans for a national security law in Hong Kong and the staggering UK public debt figures sapped optimism out of the market.

Running out of money

The UK public finances are now beginning to look scary with public sector net debt rising to close to £1.9tn, not far off the size of the UK’s whole economy. In April alone the amount the government was in debt rose to £63.5bn,  a long way from the surplus of £9.8bn in the same month last year. The scale of the financial strain is beginning to dawn on currency investors, the pound lost nearly 0.4% against the dollar.  

Asia exposure

China’s manhandling of Hong Kong’s legal system is hitting financial institutions with heavy Asia exposure. Insurer Prudential which sold off its UK business last year to focus on Asia and the US has already been struggling even before the latest tensions. Its sales in Asia dropped by nearly a quarter during the first three months of the year and then declined a further 8.3% as of this morning. Standard Chartered and HSBC, both with significant businesses in Asia, are also trading lower.

Utilities hit

Closing of speculative positions ahead of the UK’s three day weekend are hitting utilities like Centrica, typically a defensive stock. Centrica’s value has increased by over 17% in the last month but for the moment the rally seems to have run out of steam, potentially before another leg up. The stock has a long way to go before regaining the 60% lost since February.
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