By Barbara Kollmeyer, MarketWatch
The main European stock index was poised for its best weekly return in more than a month, but shares struggled Friday as investors got spooked by news that China will tighten control over Hong Kong with a new security law.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP -0.25% fell 1.3% to 335.82, but is up 3.3% for the week, the strongest weekly return since April 10. Elsewhere, the German DAX /zigman2/quotes/210597999/delayed DX:DAX -0.35% and French CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 +0.34% were flat to slightly lower, while the FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX -0.10% dropped 0.8%.
Appetite for riskier assets such as stocks was lacking Friday, with U.S. stocks trading weaker in early action and Asian equities mostly falling, led by a 5.4% drop for the Hong Kong Hang Seng /zigman2/quotes/210598030/delayed HK:HSI +2.00% . U.S. /zigman2/quotes/211629951/delayed CL.1 -1.10% and European benchmark crude prices fell just over 3% each.
“A controversial new security law in Hong Kong and no China GDP forecast are refueling the concerns over U.S.-China relations. Hostilities between the two biggest global economies have unearthed some caution in the second half of the week,” said Jasper Lawler, head of research at London Capital Group, in a note to clients.
China’s plans to introduce strict new security measures in the territory sparked concerns over the return of protests that rocked the region last year. Investors also fear China’s move will add to rising tensions with the U.S. — President Donald Trump told reporters on Thursday that the U.S. would react “strongly” toward those moves on Hong Kong.
That is as coronavirus concerns remain an issue for global markets. China’s top economic official said the government won’t set a growth target and vowed higher spending to help fight the virus and repair the damaged economy.
Elsewhere, U.K. British retail sales recorded their biggest monthly drop on record in April, while government borrowing ballooned due to the country’s lockdown aimed at stopping the spread of the new coronavirus.
HSBC Holdings /zigman2/quotes/208272822/composite HSBC -4.72% /zigman2/quotes/203901799/delayed UK:HSBA -0.33% was in the spotlight over Hong Kong tensions, with those shares dropping nearly 5%. Insurer Prudential /zigman2/quotes/200530572/delayed UK:PRU 0.00% fell more than 8%.
Drugmakers were under pressure, with shares of Roche Holding PLC /zigman2/quotes/206324342/delayed CH:ROG -0.57% down over 2% and GlaxoSmithKline PLC /zigman2/quotes/209463850/composite GSK +2.41% /zigman2/quotes/200381158/delayed UK:GSK -0.98% off 1%.