Stocks Mixed as Politics Outweigh Recovery Hopes: Live Updates

Global stocks are mixed as political tensions outweigh recovery hopes.

European stocks opened modestly higher on Wednesday after a mixed day in Asia, as heightened rhetoric from the United States toward China slowed a market rally.

London was 0.7 percent higher in early trading, outpacing gains in France and Germany. Trading in Asia had been similarly muted, with Japan and South Korea ending moderately higher by stocks in China, Hong Kong and Australia ending lower.

Futures markets were predicting a modest rise in U.S. stocks later on Wednesday, despite a big rally on Wall Street on Tuesday.

Other markets showed skepticism. Prices for U.S. Treasury bonds rose while oil prices fell on futures markets.

The mixed messages came after President Trump said on Tuesday that the United States could offer a strong response as soon as this week to China’s effort to strengthen its hold over Hong Kong, a semiautonomous former British colony that offers economic and civil liberties that the mainland lacks. The market uncertainty also came as police flooded Hong Kong streets in anticipation of public protests against Beijing’s plans to enact a national security law that will cover the city of about seven million people.

The worries offset growing optimism about the coronavirus recovery, as officials in the United States, Europe and Japan have in recent days taken steps to reopen their economies. On Wall Street on Tuesday, the S&P 500 index ended 1.2 percent higher.

Two of the world’s biggest economies said on Wednesday that they would pump trillions of dollars into propping up businesses, industries and individuals hard hit by the coronavirus.

Japan and Europe, both early victims of the global pandemic that have recently begun to reopen after lengthy shutdowns, bucked forces of austerity to enact stimulus plans.

Japan’s cabinet was expected to approve more than a trillion dollars in stimulus funds, according to local news reports. The funds will likely include a combination of subsidies to companies and people.

Japan’s new package follows a trillion-dollar raft of measures that the country passed in April. Taken together, the two packages would be equivalent to 40 percent of the Japan’s economic output, Prime Minister Shinzo Abe told reporters on Wednesday morning.

Japan’s economy shrank by 3.4 percent in the three-month period ending in March. In mid-April, the country entered a state of emergency, a sort of voluntary lockdown that continued through this week.

In Belgium opposition to a bailout came from some of the bloc’s wealthiest nations, the Netherlands, Sweden, Denmark and Austria, which said the European Commission should not hand out cash but rather offer loans. When Germany and France, the bloc’s wealthiest countries, reached an agreement on grants, the so-called Frugal Four appeared compelled to agree.

Observers say the deal signals a new foray by the European Commission into capital markets, which some have called a step toward creating a “United States of Europe.”

Wall Street analysts have grown increasingly pessimistic in recent weeks about the outlook for corporate profits, even as investors have pushed markets steadily higher, breaking the link between analyst forecasts and the direction of stock prices.

Most companies in the S&P 500 stock index have reported their first-quarter earnings, and the impact of the coronavirus pandemic on profits is becoming clear, at least for January through March. On a per-share basis, profits of S&P 500 companies fell by 13 percent, making it the worst slump since 2009.

Analysts think things will get worse before they get better. At the end of March, the consensus among analysts was that profits at companies that make up the index would sink a modest 1.8 percent in 2020. But after digesting the financial reports of companies from Agilent Technologies to Zions Bancorp, they now think 2020 profits will tumble more than 20 percent.

Any finance textbook’s section on equity prices holds that the direction of the stock market is determined, to a large extent, by the profits and dividends that shareholders expect companies to produce in the future. And academic research has repeatedly shown that when Wall Street analysts revise their forecasts for a company’s profits, it can move share prices.

Going by the conventional wisdom, the current collapse in profit expectations — and analysts’ woeful prognoses for future earnings — should be clobbering share prices. But investors don’t appear to be taking their cues from analysts. The S&P 500 has soared more than 30 percent over the last two months.

That raises questions about how they might be used. Companies and government agencies in China have a mixed record on keeping personal information safe from hacks and leaks. The authorities have also taken an expansive view of using high-tech surveillance tools in the name of public security. For now, Chinese authorities have set few limits on how the apps can be used.

Some people in China think the city of Hangzhou has gone too far. Officials in the technology hub are exploring expanding the health code to rank citizens with a “personal health index” that could include data like how much they sleep they get, how many steps they take, how much they smoke and drink and other unspecified metrics.

The proposal has met with swift criticism online in China. While the public can do little about surveillance by the central government, it has become increasingly aware of the potential for misuse by data thieves and nosy local officials.

“I know that in this age of big data, it’s so easy for those who control data to check and use personal information in a matter of minutes,” the author Shen Jiake wrote. But Hangzhou’s plan “crosses a line,” he said.

New data released on Wednesday showed that the Chinese economy — or at least the part involving its vast industrial sector — continues to bounce back from the outbreak.

Industrial sales in April rose 5.1 percent compared with a year earlier, statistics officials said, after a disastrous plunge in the first three months of the year, when the country was grappling with the worst of the outbreak. Data released by the National Bureau of Statistics and analyzed by The New York Times suggested sales at the biggest industrial companies matched the levels they reached a year earlier.

Key areas including the automotive sector, special equipment, electrical machinery, electronics and high technology manufacturing have seen the most growth, according to Zhu Hong, a senior statistician from the NBS. “Orders are gradually coming back and the profits are obviously picking up,” he was quoted as saying in a statement from NBS.

Some of the business comes from work that went quiet during the outbreak. Some also stems from government efforts to get the economy back on track.

One key area remains weak: China’s spenders. Retail sales have continued to slump, in a time when many Chinese consumers are still coping with job losses, slashed paychecks and reduced hours.

Wall Street’s focus was on economic recovery Tuesday, and stocks rallied along with crude oil prices.

The S&P 500 rose more than 1 percent, with shares of companies most likely to benefit from the lifting of restrictions on travel and commerce faring well. Shares of Delta Air Lines, United Airlines and other big carriers rose, as did Marriott International.

Oil prices have been climbing all month as the restarting of factories and resumption of travel raised expectations that demand would rise. On Tuesday, West Texas intermediate crude rose another 3 percent, and shares of companies in the energy industry, like Chevron and Halliburton, were also higher.

It’s been a turbulent period for stocks, with the S&P 500 alternating between gains to losses on a daily basis last week, as expectations for an eventual recovery from the coronavirus pandemic have squared off against the reality that the damage is still severe and likely to continue for some time.

News of progress on vaccine development — even if small scale and early stage — has been one factor fueling the gains.

Tuesday was no exception, after the biotech company Novavax said on Monday that it was starting trials of its vaccine on humans, with preliminary results expected in July. On Tuesday, the pharmaceutical giant Merck said it bought the rights to develop a potential drug that had “potent antiviral properties against multiple coronavirus strains,” and was also beginning work on vaccine candidates.

The reopening of businesses has been another. One largely symbolic opening on Tuesday was that of the New York Stock Exchange’s trading floor. A small number of traders returned to the floor, wearing masks and following social-distancing rules, the exchange said.

Shares in Europe and Asia were also higher as investors shrugged off negative news like rising tensions between the United States and China and the combustible political situation in Hong Kong. Instead, they focused on Japanese leaders gradually lifting emergency measures there, while European leaders have also moved to ease travel restrictions.

But any gains are susceptible to a sudden change in sentiment if the reopening plans result in new outbreaks or fresh concerns about the longevity of economic slowdown emerge.

Chinese leaders meeting since last week in Beijing have stressed their efforts to create jobs and get the country back to work. But surveys and interviews show many young workers are entering into the work force in the worst market in decades.

“When it was April and I still couldn’t start my job, I started to feel worried,” said Huang Bing, 24, who graduated last year from a prestigious Chinese drama school. Her new job, set to begin this past January, ended before it began.

“I began worrying that I may not be able to work this year at all,” Ms. Huang said. “I can’t just keep waiting.”

Online, young people despair over finding a good job, with many settling for something that pays less. Many others are reluctant to relent. “The graduates do not fully understand the market,” said Martin Ma, a human resources officer for a Chinese software company. “Their expectations are quite high.”

For the world, global growth will be hard to rekindle until China gets fully back to work. But the damage to the Communist Party could be long-lasting. It derives its political power from the promise of delivering a better life for the Chinese people, a promise that has become increasingly difficult to fulfill.

Hoping to take advantage of wreckage in the wake of the coronavirus pandemic, investors are preparing to snap up commercial real estate at rock-bottom prices.

Long before states and cities closed businesses and issued stay-at-home orders, many real estate funds were stockpiling cash and waiting for a buyer’s market. Some have raised billions of dollars in the last several weeks.

As a result, investment firms are sitting on roughly $300 billion of equity ready for deployment, said Douglas M. Weill, a founder of Hodes Weill & Associates, a global real estate capital advisory firm in New York. “It’s a staggering amount of dry powder,” he said.

Every commercial property owner has its specific problems, but mom-and-pop landlords that own a handful of apartment buildings, retail centers or other assets are in a much more compromised position, said Sanford D. Sigal, president and chief executive of NewMark Merrill, a shopping center owner and manager in Woodland Hills, Calif.

“Very few small owners are equipped for this type of market,” said Mr. Sigal, who expected to collect about 57 percent of his May rent from tenants across some 70 properties in California, Colorado and Illinois. “I’ve seen more deals in the past week that were worth looking at than I did in the entire prior year.”

Catch up: Here’s what else is happening.

  • The stock trading floor of the New York Stock Exchange reopened on Tuesday, though at a reduced head count to allow space for social distancing measures to remain in force. Floor brokers and trading floor officials will be allowed back, while designated market makers — the specialist traders who buy and sell in order to “make markets” in certain securities — will continue to operate remotely.

  • Latam, the largest airline in Latin America, said on Tuesday it had filed for bankruptcy protection, the latest carrier to fall victim to the pandemic. The company, based in Santiago, Chile, said it had secured $900 million in financing from major shareholders, including the Cueto and Amaro families and Qatar Airlines, and that it would work with creditors to reduce its debt while it continues operating. Avianca, Colombia’s flagship airline and one of the world’s oldest carriers, filed for bankruptcy protection earlier this month.

Reporting was contributed by Carlos Tejada, Matt Philipps, Ben Dooley, Makiko Inoue, Matina Stevis-Gridneff, Mohammed Hadi, Joe Gose and Mary Williams Walsh.

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