Asian Sell-off Over HK Law Extends To Europe

World stocks took a hit on Friday as China moved to impose a new security law on Hong Kong after last year's pro-democracy unrest, further straining fast-deteriorating US-China ties.

These tensions plus news that China has dropped its annual growth target for the first time added to concern about the fallout from the Covid-19 pandemic, knocking oil prices down more than 5% and boosting demand for safe-havens such as US government bonds.

European shares opened broadly lower, with blue-chip indexes in London, Paris and Frankfurt all down more than 1.5%.

That followed a sharp selloff in Asia led by the Hang Seng index which shed more than 5% to a seven-week low.

Japan's Nikkei slipped 0.8%, while U.S. stock futures fell almost 1% – pointing to a weak open for Wall Street.

Shanghai, Seoul, Taipei, Bangkok, Manila and Mumbai dropped more than 1 percent.

Singapore shed 2.3 percent and Sydney was 1 percent off, while Wellington dropped 0.6 percent.

While expected by markets, the news that China has not set a an economic growth target for the first time since the government began publishing such goals in 1990, added to a sense that the coronavirus fallout is likely to be protracted.

Brent crude fell more than 5% to US$34.04 a barrel, West Texas Intermediate (WTI) crude dropped 6.8% to US$31.63.

Safe-haven US Treasury yields fell around 4 basis points and the US dollar rallied.

In offshore markets, the yuan dipped to 7.15 per US dollar – its weakest in almost three weeks.

"With this latest round of US-China tensions and the risk that any new wave of weaker risk appetite triggers dollar strength, the focus on the important dollar/yuan exchange rate could quickly intensify," said Saxo Bank chief economist and CIO Steen Jakobsen.

"Particularly if the 7.20 area comes under pressure, which would point to China allowing its currency to devalue." (Reuters, AFP)