World stocks stall as U.S.-China tensions flare again

GLOBAL MARKET - LONDON. A four-day rally that had lifted world stocks to near-record highs stalled on Thursday as a U.S. bill backing Hong Kong’s protesters became law, provoking China’s ire and threatening to derail an interim trade deal between Washington and Beijing.

Fading hopes of a rapprochement between the world’s two biggest economies before additional, potentially damaging tariff hikes kick in, also helped safe-haven assets such as U.S. and German bonds and lifted the yen from six-month lows.

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The U.S. legislation, which threatens sanctions for human rights violations and seeks to safeguard Hong Kong’s autonomy, prompted China to warn of “firm counter measures”.

“The risk-off moves clearly reflect a concern this could be an impediment to the ‘Phase One’ trade deal which is now widely expected,” said Adam Cole, a strategist at RBC Capital Markets.

Wall Street’s main indexes closed at record levels for a third straight day on Wednesday, albeit in thin liquidity before the Thanksgiving holiday, after data showed U.S. economic growth had picked up in the third quarter and consumer spending had increased.

Elsewhere, though, the outlook for growth looks less rosy. Japanese retail figures slumped the most since 2015 as a sales tax hike dragged on the economy, exacerbating a slowdown caused by slowing exports and manufacturing.

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That took Asian shares excluding Japan down 0.2% .MIAPJ0000PUS. Japan's Nikkei .N225, Hong Kong's Hang Seng .HSI and Shanghai blue chips .CSI200 all closed weaker. A pan-European index opened 0.2% lower, led by trade-sensitive sectors such as autos and tech .SXAP .SX8P.

That kept MSCI’s world equity index flat, after it approached the record reached in January 2018. However, the index is up almost 3% so far in November and is on track for the best month since June as investors flit in and our depending on the trade news .MIWD00000PUS.