China tensions permeate markets
Fiona Cincotta May 22, 2020 11:29 AM
The FTSE broke below the key 6000 level at the start of Friday’s trading as the worsening of US-China relations
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.
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.
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.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.