US stocks staged a late rally on Wednesday as investors took heart from better than expected domestic corporate earnings, shaking off rising diplomatic tensions between America and China.
After spending most of the day trading in a narrow range, the S&P 500 moved higher to finish up 0.6 per cent, its highest point since mid-February.
The technology-heavy Nasdaq rose 0.3 per cent, close to the record levels it struck earlier this week. The US tech index has gained almost 20 per cent this year.
The gains were propelled by better than expected earnings from HCA Healthcare, which rose 12 per cent. Advanced Micro Devices, the chipmaker, jumped 8.4 per cent, as investors took heart from an improved outlook from rival Texas Instruments on Tuesday.
Earlier in the day, stocks in Europe and Asia stumbled and the renminbi retreated after an escalation in diplomatic friction between Washington and Beijing.
The dollar rose above 7 against the Chinese currency after the US asked Beijing to shut its consulate in Houston and local media reports showed what appeared to be consulate staff burning documents. The renminbi later trimmed those gains to fall back below 7 to a dollar.
The Stoxx Europe 600 index shed 0.9 per cent, ending a three-session winning streak. The FTSE 100 closed 1 per cent lower in London while the CAC 40 in Paris dropped 1.3 per cent.
Beijing immediately condemned the US move in Houston and warned it would retaliate unless the Trump administration rethought its decision.
“This is an escalation of degree rather than of kind,” said Tom Holland of Gavekal Research in Hong Kong. “Senior US administration officials have been getting increasingly more open and active in their criticisms of China.”
This week’s visit to London by Mike Pompeo, US secretary of state, was among a number of moves that appeared to be aimed at marshalling support for the US stance against Beijing, Mr Holland added.
“You would think investors would already have priced in the further steep deterioration in US-China relations, which has clearly been on the cards for a while now.”
Japan’s Topix index slipped 0.6 per cent on Wednesday, while Australia’s S&P/ASX 200 fell 1.1 per cent. Hong Kong’s Hang Seng was off 2.3 per cent.
Monica Defend, Amundi’s global head of research, said: “It is clear that tensions between the two countries are rising . . . China’s approach is expected to remain one of tit-for-tat, with emerging speculation that China will close the US consulate in Wuhan.”
None of this has yet to put an end to the rally in US corporate bonds, with the yield on higher-rated investment-grade bonds sinking to 1.99 per cent on Tuesday, according to Ice Data Services. This marks the first time the index has fallen below 2 per cent, as debt markets remain supported by the Federal Reserve, helping borrowing costs to decline.
Investors continue to examine data on coronavirus in the US. More than 1,000 deaths were recorded in the country on Tuesday, the first time the total has been over that number since May. The daily figure for new cases ticked back above 60,000 and California became the second state to surpass 400,000 infections since the pandemic began, after New York.
Uncertainty over the trajectory of the health crisis fuelled demand for some haven assets. Gold jumped 1.4 per cent to a nine-year high of $1,863.80 an ounce. US government bonds held firm, with the yield on US 10-year Treasuries down 0.01 percentage points at 0.597 per cent. Yields fall when prices rise.
The Treasury department was able to auction off $17bn of 20-year notes with ease on Wednesday, fetching a 1.059 per cent yield for the debt. The agency only recently revived this security in May, having ceased to issue it roughly three decades ago due to flagging demand.
Oil prices dropped. West Texas Intermediate, the US marker, slipped 0.3 per cent to $41.80 a barrel. Brent, the international benchmark, fell 0.2 per cent to $44.22 a barrel.
The euro remained buoyant for a second day, pushing as much as 0.8 per cent higher against the pound to head for a near one-month high.
Italy’s 10-year government bond yield, a key measure of risk in eurozone bond markets, fell 4.6 percentage points to 1.041 per cent, its lowest level since February.
Additional reporting by Joe Rennison, Naomi Rovnick and Colby Smith