Investor Alert

Europe Markets

May 29, 2020, 6:07 a.m. EDT

European stocks fall on rising U.S.-China tensions

Renault and Rolls-Royce shares tumble

By Barbara Kollmeyer, MarketWatch

AFP via Getty Images
A man wearing a face mask leaves the plant of the French Renault car maker in Sandouville, France, on May 7, 2020.

European stocks fell on Friday, with investors nervous ahead of a press conference by U.S. President Donald Trump over China and as tensions rise between the countries, first over the coronavirus and now over Beijing’s fresh crackdown on Hong Kong.

Breaking a four-session win streak, the Stoxx Europe 600 index (STOXX:XX:SXXP)  fell 1% to 351.63 after a gain of 1.6% on Thursday. For the week to Thursday, the index has gained 4.5% as investors have grown more hopeful that country reopenings will help to restart the global economy.

The German DAX (XEX:DX:DAX)  fell 1.2% and the French CAC 40 (PAR:FR:PX1)  dropped 0.8% and the FTSE (FTSE:UK:UKX)  fell 0.9%. The euro (XTUP:EURUSD)  climbed 0.5% against the dollar. Data revealed eurozone inflation dropping to a near four-year low in May.

The White House didn’t release any details on the Trump press conference coming later. Investors fear rising Sino-American tensions between the countries could seep into trade relations, creating more problems for a global economy that has been battered by fallout from the coronavirus pandemic.

China has drawn the ire of several countries after passing legislation that could curtail Hong Kong’s democratic freedoms. This law has led U.S. Secretary of State Mike Pompeo to say Washington will no longer treat Hong Kong, already reeling from antigovernment protests and the pandemic, as autonomous from Beijing.

U.S. stocks fell into the closing bell on Thursday after Trump said he would hold a news conference on Friday, with the Dow industrials (DOW:DJIA)  logging a 150-point loss. Dow futures (CBT:YM00)  were last down over 200 points.

Read : Revoking Hong Kong’s special status is Trump’s ‘nuclear option’ that could trigger irrevocable U.S.-China split, analysts warn

The automobile sector, sensitive to signs of trade tensions, was under pressure. Shares of Renault (PAR:FR:RNO)  fell 3% after the French auto maker said it would eliminate more than 14,000 jobs over three years and slash production capacity to cut costs by more than €2 billion ($2.21 billion), due to fallout from the global pandemic.

“There is no denying that the automobile industry has been hit hard, and the bigger question is whether we will see a similar reaction from other car makers such as BMW and Mercedes-Benz,” said Naeem Aslam, chief market analyst at AvaTrade, in a note to clients.

Shares of BMW (FRA:DE:BMW) fell over 2%, while Daimler (FRA:DE:DAI)  shares and Volkswagen (FRA:DE:VOW3)  shares fell 3% each.

AstraZeneca (NAS:AZN)   (LON:UK:AZN)  shares rose 3% after the drugmaker said its Tagrisso lung-cancer drug “demonstrated unprecedented patient benefit” in a Phase III trial. In postsurgery patients with EGFR-mutated non-small cell lung cancer, Tagrisso cut the risk of the disease coming back or death by 83%. 89% of those using it after two years are alive and disease-free, the company said.

Shares of Rolls-Royce Holdings (LON:UK:RR)  tumbled 6% after S&P Global Rating’s downgraded the engine maker’s credit rating to junk.

“Due to COVID-19’s impact on airlines, aircraft original equipment manufacturers (OEMs), and their supply chains, we now forecast that Rolls-Royce will exhibit materially lower engine sales, receive less cash from engine flying hour related invoices, and see subdued demand for aftermarket services through 2020 and 2021, at least,” said analysts David Matthews and Tuomas E. Ekholm, in a press release.

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