Global shares fall sharply on renewed US economic worries

Asian and European shares took their cue on Friday from overnight losses in the United States after new figures showed the number of Americans claiming state unemployment benefits rose for the first time in nearly four months.

Many Asian countries count the US as one of their most important export destinations, and signs of weakness in the US economic rebound due to a surge in coronavirus cases is adding to worries that the recovery in Asia could take longer than expected.

Mainland Chinese stocks led the way down in late Asian trading, with the Shanghai Composite Index plunging by 3.3 percent. Hong Kong’s Hang Seng index was down 2.2 percent and Australia’s S&P ASX 200 index was off by 1.2 percent. Japanese markets were closed for a holiday.

“A sobering US trading session may have set a downbeat tone for Asia stocks at the open,” Margaret Yang, strategist at research firm DailyFX, said in a research note sent to Al Jazeera.

“But this seems more like a healthy correction rather than a major reversal of the bull market, as US corporate earnings continue to deliver more positive surprises. More than 80 percent of the S&P 500 companies that have already reported have beaten market forecasts,” Yang added.

European shares also opened sharply lower. Germany’s XETRA DAX was 1.3 percent down, while the main indices in London, Paris and Rome fell by about 1.1 percent.

On Wall Street, the Dow Jones Industrial Average ended 1.3 percent lower on Thursday, while the S&P 500 shed 1.2 percent and the Nasdaq slumped by 2.3 percent.

Some 1.416 million people in the US filed for state unemployment benefits in the week ending July 18 – an increase of 109,000 over the previous week’s revised figure, the Bureau of Labor Statistics reported.

Initial jobless claims are a proxy for layoffs and the trend higher signals that employers are furloughing workers as rising COVID-19 infections prompt states and cities across the country to pause or reverse the rollback of lockdown restrictions.

“There are signs that the resurgence in coronavirus infections caused the pace of recovery to slow sharply in July, with the downward trend in initial jobless claims stalling and consumer foot traffic at retail stores levelling off,” Paul Ashworth, chief US economist at Capital Economics, said in a research note sent to Al Jazeera.

The number of coronavirus cases in the US surpassed four million on Thursday, according to data compiled by Johns Hopkins University, amid a surge in cases in southern and western states.

The US is the world’s worst-affected nation, with more confirmed coronavirus cases and deaths than any other country.

‘Frankenstein’

Meanwhile, worsening tensions between the US and China – the world’s top two economies – have also cast a pall over financial markets. 

US Secretary of State Mike Pompeo urged allies to do more to contain China’s growing military ambitions.

“President [Richard] Nixon once said he feared he had created a ‘Frankenstein’ by opening the world to the [Chinese Communist Party],” Pompeo said in a speech at the Nixon Library in California. “And here we are.”

His comments followed Washington’s order to Beijing to close its consulate in Houston, Texas, which Pompeo described as “a hub of spying and intellectual property theft”.

China said the move has “severely harmed” relations and warned it “must” retaliate, without detailing what it would do.

Chinese foreign ministry spokesman Wang Wenbin described the US’s allegations as “malicious slander” and said the “unreasonable” move had “severely harmed” relations.

On Friday, China ordered the US to close its consulate in the southwestern city of Chengdu.

The Chinese foreign ministry said the Chengdu mission’s closure was a “legitimate and necessary response to the unreasonable measures by the United States”.

“The current situation in China-US relations is not what China desires to see,” it said in a statement, adding that “the US is responsible for all this”.

The combination of the strained US-China relationship and the worsening coronavirus pandemic has driven some investors to seek the relative safety of assets such as gold.

The precious metal has risen by more than 4 percent this week, trading at $1,884.3 per ounce on Friday. That is down about 0.25 percent on the day, but it remains within striking distance of its record high of $1,920 reached in September 2011.