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U.S. Futures Slip With Shares Amid Hong Kong Fears: Markets Wrap

(Bloomberg) — U.S. equity futures slipped alongside stocks on Friday as investors braced for tensions between Washington and Beijing to escalate after China announced plans to impose a national security law on Hong Kong. Treasuries climbed with the dollar while oil snapped a six-day winning steak.

Contracts on all three main American equity gauges pointed to modest losses at the Wall Street open. Deere & Co., the world’s biggest tractor maker, bucked the trend, rising in premarket trading after it reported better-than-expected earnings. Food and mining companies led the Stoxx Europe 600 Index lower.

The risk-off tone took hold earlier in Asia, where Hong Kong’s benchmark stock index plunged more than 5% amid a broad selloff. The yuan dipped as China’s National People’s Congress abandoned its decades-long practice of setting an annual target for economic growth amid uncertainty unleashed by the coronavirus pandemic.

The prospect of fresh turmoil in Hong Kong following sweeping national security legislation introduced by China comes as the relationship between the world’s two biggest economies appears to be souring. The S&P 500 closed lower on Thursday, with signs mounting that President Donald Trump will make his tough stance on China a key element of his re-election bid. Beijing responded to accusations from Trump, warning that it will safeguard its sovereignty, security and interests, and threatened countermeasures.

It all risks choking the rally that took global equities up about 30% from the March lows, spurred by stimulus measures and optimism for a swift economic recovery from the virus.

“Although both sides highlighted overnight progress on trade deal implementation and the intention to keep it going, the overall relationship is deteriorating fast,” Sebastien Barbe, the head of emerging-market research and strategy at Credit Agricole CIB, wrote in a note to clients. “The issue may well become a major drag on sentiment until U.S. presidential elections in November.”

Meanwhile, the pound weakened for a third day as data showed retail sales in the U.K. dropped by almost a fifth in April. West Texas oil plunged as much as 9.4% before trimming its losses to trade around $32 a barrel in New York.

Elsewhere, gold pushed higher. The Australian dollar dipped as Fitch Ratings Ltd. cut the country’s rating outlook to negative. Indian bonds rallied after an unscheduled rate cut. The Bank of Japan held its main rate while saying it will start a new lending program; the yen edged higher.

These are some of the main moves in markets:

Stocks

Futures on the S&P 500 Index decreased 0.2% as of 7:19 a.m. New York time.The Stoxx Europe 600 Index declined 0.4%.Germany’s DAX Index dipped 0.3%.The MSCI Asia Pacific Index sank 1.9%.

Currencies

The Bloomberg Dollar Spot Index gained 0.4%.The euro declined 0.4% to $1.0909.The Japanese yen strengthened 0.2% to 107.44 per dollar.The British pound declined 0.3% to $1.2185.

Bonds

The yield on 10-year Treasuries declined two basis points to 0.65%.Germany’s 10-year yield decreased one basis point to -0.50%.Britain’s 10-year yield dipped one basis point to 0.163%.

Commodities

West Texas Intermediate crude decreased 5.5% to $32.05 a barrel.Gold strengthened 0.4% to $1,734.73 an ounce.

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