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Global markets dive as the US ratchets up tensions with China over the coronavirus – Business Insider

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Reuters

  • Stocks fell across the board on Monday after the US ramped up tensions with China and continued to blame the origin of the coronavirus on a lab in the city of Wuhan.
  • Although markets were closed in China and Japan Monday, stocks in Hong Kong plunged, aided by news that the territory’s economy shrank by almost 9% in the first quarter of the year.
  • European stocks also dropped, with the pan-European Stoxx 50 losing 3.5% by early morning US time.
  • “If Trump continues with this stance of blaming China and remains determined to punish Beijing for this — as per his recent narrative— a “Mayday” type of situation could be the likely outcome for the global economy,” one analyst said.
  • Follow global market moves live with Markets Insider.

Stocks fell on Monday as tensions between the US and China ratcheted back up after senior Trump administration officials claiming that the coronavirus pandemic originated in a lab in Wuhan, and the president sent numerous anti-China tweets.

Asian markets fell first, with Hong Kong’s Hang Seng index down more than 4% at the close Monday.

European stocks followed suit, having opened higher but fell in the early hours of trading, with major indexes dropping as much as 4.5% in early trade. Most continental European markets were shut last week on Friday to celebrate Labor Day.

The negative sentiment comes as the US increasingly looks to place the burden of blame for the spread of the coronavirus on China, with one analyst noting that President Trump is likely to “beat on the Chinese as hard as he can without actually going to war.”

Here’s the market roundup as of 12.55 p.m. BST (7.55 a.m. ET):

  • Several Asian indexes fell sharply, with Hong Kong’s Hang Seng down 4%, South Korea’s KOSPI down 2.7%. Chinese stock markets remained closed, as did the Nikkei in Japan. Hong Kong’s economy shrank by almost 9% in the first quarter of 2020, compounding losses for the Hang Seng.
  • European equities broadly fell. Germany’s DAX was down 3.4%, the broad Euro Stoxx 50 down 3.5% and France’s CAC 40 down 3.8%. Britain’s FTSE 100 was relatively strong comparatively, down just 0.1%.
  • US stocks are poised for a lower open. Futures underlying the Dow Jones Industrial Average fell 0.9%, the S&P 500 fell 0.6% and the Nasdaq fell 0.5%, rallying from losses of more than 1% earlier in the day.
  • Oil prices fell with West Texas Intermediate down 2.7% at $19.27, and Brent crude down 0.6% at $26.27. WTI had been down 7% earlier in the day.
  • Gold rose 0.9% to $1,717 per ounce.
  • Bitcoin fell about 4% to roughly $8,685. 

US-China tensions ramp up

Markets fell after US Secretary of State Mike Pompeo said told ABC on Sunday “there is enormous evidence” that the coronavirus pandemic originated in a lab in the city of Wuhan.

“We said from the very beginning this is a virus that originated from Wuhan China. We took a lot of grief for that from the outset but I think the whole world can see that now,” Pompeo said.

Pompeo’s allegations were the latest in a series of anti-China statements from White House officials, as the administration looks to apportion blame for the pandemic.

Reuters reported on Monday the Trump administration is looking to remove global supply chains from China as it weighs the possibility of imposing fresh tariffs on China to penalize the country for its handling of the pandemic. 

Analysts were quick to note the impact the tensions are having on global markets. 

Naeem Aslam, chief market analyst at Avatrade, said: “If Trump continues with this stance of blaming China and remains determined to punish Beijing for this — as per his recent narrative— a “Mayday” type of situation could be the likely outcome for the global economy.”

Read more: GOLDMAN SACHS: Buy these 13 stocks primed to keep delivering powerful dividends as their peers are forced to slash payouts. 

Neil Wilson, market analyst at Markets.com, said: “Whilst monetary and fiscal stimulus sustained a strong rally through April – the best monthly gain for Wall Street since 1987 – it’s harder to see how it can continue to spur gains for equity markets.”

Wilson added: “This is an election year so I’d expect Trump to beat on the Chinese as hard as he can without actually going to war. Trade Wars 2.0 will be worse than the original.”

But Aslam thinks the possibility of having a vaccine by the end of the year could offset any market impact from US-China tensions. 

“If the possibility of having a vaccine became a reality by the end of this year, it would surely support market optimism.”

Gilead’s experimental antiviral called remdesivir was approved for emergency use in the US on Friday, after a trial showed patients on the drug recovered 31% faster compared to patients who were put on a placebo. 

“This is because it reduces the chances of a second-coronavirus wave having the same detrimental impact on the global economy as the first one,” Aslam said.

Analysts point to a rise in gold prices

gold barsReuters / Pascal Lauener

Aslam said ongoing tensions could increase the demand for gold, another safe-haven asset. 

“The safe-haven bet, buying gold, is back in demand and the price of the shining metal is trading higher today. Given the fact that tensions have resurfaced between the US and China, investors are likely to play safe and include gold in their portfolios.”

He added: “Fear of trade war usually pushes investors towards safety bets and gold sits at the top of this ladder. No one wants to see a hostile situation surging but the US officials are on course to play with fire.”

Losses were also seen in both the US and international oil markets, after they had recovered last week following days of volatility. 

Read more: Warren Buffett discussed bailouts, coronavirus, and selling airline stocks at Berkshire Hathaway’s annual meeting. Here are the highlights.

After dropping into negative territory two weeks ago, oil has remained volatile, although prices have risen in recent days. Concerns, however, are mounting that the June oil contract could turn negative the closer it moves to expiration. 

Aslam said: “Investors are concerned about the storage issues despite the fact that we have seen some serious voluntary production cut by the US Shale oil producers over the last week. The possibility of an intense sell-off of West Texas Crude remains a possibility.”

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OPEC, Russia to extend record oil cuts to end of July amid pandemic – CBC.ca

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OPEC, Russia and allies agreed on Saturday to extend record oil production cuts until the end of July, prolonging a deal that has helped crude prices double in the past two months by withdrawing almost 10 per cent of global supplies from the market.

The group, known as OPEC+, also demanded countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.

OPEC+ had initially agreed in April that it would cut supply by 9.7 million barrels per day (bpd) during May-June to prop up prices that collapsed due to the coronavirus crisis. Those cuts were due to taper to 7.7 million bpd from July to December.

“Demand is returning as big oil-consuming economies emerge from pandemic lockdown. But we are not out of the woods yet and challenges ahead remain,” Saudi Energy Minister Prince Abdulaziz bin Salman told the video conference of OPEC+ ministers.

Benchmark Brent crude climbed to a three-month high on Friday above $42 a barrel, after diving below $20 in April. Prices still remain a third lower than at the end of 2019.

WATCH | Canadian oil producers don’t see relief after OPEC deal to cut output:

Richard Masson, chair of World Petroleum Council-Canada, says Ottawa needs to move soon if it plans to help producers, as companies face ‘really tough decisions.’ 0:55

“Prices can be expected to be strong from Monday, keeping their $40 US plus levels,” said Bjornar Tonhaugen from Rystad Energy.

Saudi Arabia, OPEC’s de facto leader, and Russia have to perform a balancing act of pushing up oil prices to meet their budget needs while not driving them much above $50 US a barrel to avoid encouraging a resurgence of rival U.S. shale production.

1 billion barrels of excess oil inventories

The April deal was agreed under pressure from U.S. President Donald Trump, who wants to avoid U.S. oil industry bankruptcies.

Trump, who previously threatened to pull U.S. troops out of Saudi Arabia if Riyadh did not act, spoke to the Russian and Saudi leaders before Saturday’s talks, saying he was happy with the price recovery.

While oil prices have partially recovered, they are still well below the costs of most U.S. shale producers. Shutdowns, layoffs and cost cutting continue across the United States.

As global lockdown restrictions to halt the spread of the coronavirus are being eased, oil demand is expected to exceed supply sometime in July but OPEC has yet to clear 1 billion barrels of excess oil inventories accumulated since March.

Tonhaugen said Saturday’s decisions would help OPEC reduce inventories at a rate of 3 million to 4 million bpd over July-August.

Workers are seen in Aramco’s oil separator at processing facility in Abqaiq, Saudi Arabia, in September 2019. (Amr Nabil/The Associated Press)

“The quicker stocks fall, the higher prices will get. And that is crucial for many OPEC+ economies, whose fiscal budgets count on oil sales,” he said.

Nigeria’s petroleum ministry said Abuja backed the idea of compensating for its excessive output in May and June.

Iraq, with one of the worst compliance rates in May, agreed to extra cuts although it was not clear how Baghdad would reach agreement with oil majors on curbing Iraqi output.

Workers are seen in the Nihran Bin Omar field north of Basra, Iraq, in January 2017. (Nabil al-Jurani/The Associated Press)

Iraq produced 520,000 bpd above its quota in May, while overproduction by Nigeria was 120,000 bpd, Angola’s was 130,000 bpd, Kazakhstan’s was 180,000 bpd and Russia’s was 100,000 bpd, according to OPEC+ data.

OPEC+’s joint ministerial monitoring committee, known as the JMMC, would now meet every month until December to review the market, compliance and recommend levels of cuts.

The next JMMC meeting is scheduled for June 18, while the next full OPEC and OPEC+ meeting will take place on Nov. 30-Dec. 1.

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OPEC+ extends oil cuts in deal that hinges on end of cheating – BNNBloomberg.ca

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OPEC+ agreed to a one-month extension of its record output cuts and adopted a stricter approach to ensuring members don’t break their production pledges.

The deal will underpin the oil market recovery, easing the financial pain felt by resource-dependent emerging economies, shale explorers in Texas, and blue-chip companies like Royal Dutch Shell Plc.

It’s a victory for Saudi Arabia and Russia, who put a destructive price war behind them to successfully cajole Iraq, Nigeria and other laggards to fulfill their promises to cut production. The two leaders of OPEC+ showed that they intend to keep a close watch on the oil market, meeting every month to assess the balance between supply and demand amid an uncertain economic recovery from the global pandemic.

“Our collective efforts have borne fruit, and despite many uncertainties, there are encouraging signs that we are over the worst,” said Saudi Energy Minister Prince Abdulaziz bin Salman. “Demand is returning as big oil-consuming economies emerge from pandemic lockdown,” he added.

After a video conference lasting several hours on Saturday, delegates said all nations had signed off on a new deal for a production cut of 9.6 million barrels a day next month. That’s 100,000 barrels a day lower than the reduction in June because Mexico will end its supply constraints, but a tighter limit than the 7.7 million barrels a day set for July in the group’s previous agreement.

In addition, the communique states that any member that doesn’t implement 100 per cent of its production cuts in May and June will make extra reductions from July to September to compensate for their failings.

Those promises are a particular vindication for the Saudi minister, who has consistently pushed fellow members to stop cheating on their quotas since his appointment last year.

But they could also add an element of risk. In theory, the entirety of the 23-nation production agreement, which runs until April 2022, is now contingent on every member making 100 per cent of their pledged cuts, according to the communique. That’s something rarely achieved in the three-and-a-half years that OPEC+ has existed, or indeed the decades-long history of the Organization of Petroleum Exporting Countries itself.

Daunting Challenge

Oil has just posted a sixth weekly gain in London, more than doubling to US$42.30 a barrel since April with traders anticipating tighter supplies as demand recovers from lockdown. U.S. President Donald Trump on Friday hailed the cuts from OPEC and its allies for saving America’s energy industry, and U.S. Energy Secretary Dan Brouillette welcomed the deal on Saturday.

The oil market “is still in a fragile state and needs support,” Russia’s Energy Minister Alexander Novak said in opening remarks at the virtual meeting. “That is why today more than ever it is important to adhere to 100 per cent compliance.”

The group hopes to build on its success by pushing the market into a supply deficit next month, using a price structure called backwardation to start to chip away at the billion barrels of oil stockpiles that built up during the pandemic.

There was no discussion in the meeting about the future of the additional 1.2 million barrels a day of voluntary output cuts being implemented by Saudi Arabia and its Gulf allies in June, delegates said.

The cartel will meet again in the second half of June for another review of the oil market. Talks are scheduled on June 18 for the Joint Ministerial Monitoring Committee, which could recommend a further extension if it’s deemed necessary, pushing the deep production cuts into August, a delegate said. That panel will meet every month until December, according to the communique.

The next full ministerial OPEC+ meeting has been scheduled for Nov. 30 to Dec. 1, delegates said, although the communique notes that a conference could be held whenever it is required.

Embedded Image

Cutting production is always painful for oil-dependent states. Iraq in particular needs every penny because it’s still rebuilding its economy following decades of war, sanctions and Islamist insurgency.

The country made less than half of its assigned cutbacks last month, so compensating fully would require it to slash production by a further 24 per cent to about 3.28 million barrels a day, according to Bloomberg calculations. Accepting such terms could risk a backlash from Iraqi parliamentarians and rival political parties for bowing to foreign pressure.

The traditional shirkers in OPEC+ have promised many times before to do better. Some analysts were skeptical that this occasion will be any different.

“Everyone saves face with this agreement,” Jan Stuart, global energy economist at Cornerstone Macro LLC, said on Friday after a tentative deal was in place. “But it begs the question: What is the enforcement mechanism? I’m very curious to see how the organization is going to elicit greater compliance from the cheaters.”

There’s also a risk that future OPEC+ curbs could be undermined by a return of Libyan oil. The civil war there halted more than one million barrels a day of production, helping OPEC+ rebalance the market, but a cease fire now opens the door for a gradual recovery of supply.

For now at least, members of OPEC+ can enjoy the price gains resulting from their deal.

“The oil market is on its way to recovery,” said Ann-Louise Hittle, oil analyst at consultant Wood Mackenzie Ltd. “Supply has shifted dramatically already”

–With assistance from Julian Lee and Khalid Al-Ansary.

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Optimistic U.S. unemployment figures under-reported due to misclassifications – CBC.ca

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U.S. unemployment dropped unexpectedly in May to 13.3 per cent as reopened businesses began recalling millions of workers faster than economists had predicted. But the Labour Department for the second straight month acknowledged making errors in counting the unemployed during the coronavirus outbreak, saying the real figure is worse than the numbers indicate.

Economists had expected the rate to approach 20 per cent, driven up from 14.7 per cent by job losses topping eight million. Their forecasts woefully missed the mark. Part of the explanation is the difficulty of assessing data when the situation is changing so quickly.

But it also reflects an acknowledged difficulties by the Labour Department’s Bureau of Labour Statistics in its information gathering. Millions of people appeared to be erroneously classified by the survey as not working but employed. These people should have been classified as on temporary layoff and therefore unemployed. Had they been counted correctly, the jobless rate would have been roughly three points higher — 16 per cent, the government said.

The same issue marred the April jobs report. In that case, the unemployment rate would have been roughly five points higher than the 14.7 per cent reported.

The jobs report is drawn from a pair of surveys. A survey of households establishes the unemployment rate. A separate survey of employers determines how many jobs were added or lost. Response rates for these surveys were lower than usual in May because of the viral outbreak. But the government still gathered enough responses to produce the jobs report.

People wait in line for help with unemployment benefits in Las Vegas on March 17. (John Locher/The Associated Press)

“The household survey response rate, at 67 per cent, was about 15 percentage points lower than in months prior to the pandemic,” the report said.

The Labour Department also includes a broader measure of unemployment. This measure includes not only people who are out of work and looking for a job but also people who stopped looking or who were reduced to part-time hours. That rate was 21.2 per cent in May.

2.5 million jobs added

Still, after weeks of dire predictions by economists that unemployment in May could hit 20 per cent or more, the news that the economy added a surprising 2.5 million jobs last month is evidence that the employment collapse most likely bottomed out in April.

At the same time, economists warn that after an initial burst of hiring as businesses reopen, the recovery could slow in the fall or early next year unless most Americans are confident they can shop, travel, eat out and fully return to their other spending habits without fear of contracting the virus.

A person wearing a mask walks past a sign seeking potential hires at a pharmacy in San Francisco on May 7. (Jeff Chiu/The Associated Press)

“We are witnessing the easiest phase of growth as people come off temporary layoffs and come back to their employers,” said Jason Furman, a Harvard economist and former top adviser in the Obama White House. “And once employers are done recalling people, the much harder, longer work of recovery will have to proceed.”

An exultant U.S. President Donald Trump seized on the report as evidence that the economy is going to come back from the coronavirus crisis like a “rocket ship.”

“This shows that what we’ve been doing is right,” said the president, who has pushed governors aggressively to reopen their economies amid warnings from public health officials that the country is risking a second wave of infections on top of the one that has killed over 100,000 Americans.

Nearly all industries added jobs last month, a sharp reversal from April, when almost all cut them. Hotels and restaurants added 1.2 million jobs in May, after shedding 7.5 million. Retailers gained 368,000, after losing nearly 2.3 million in the previous month. Construction companies added 464,000 after cutting 995,000.

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