(25 MAY 2020)DAILY MARKET BRIEF 1:Sterling under pressure as Johnson faces Tory revolt in Cummings affair.

Mixed sentiment in equities.

Equities kicked off the week on a mixed note amid investors, who are increasingly worried with mounting US-China tensions and rising unrest in Hong Kong, remained somewhat optimistic regarding the reopening of businesses across the globe and hope for more monetary and fiscal stimulus.

But developments on the US-China leg aren’t promising. Chinese Foreign Minister Wang Yi warned that the US is heading towards a new ‘cold war’. Although China remains committed to deliver on its phase-one deal promises for now, the next round of negotiations with the US will certainly be overshadowed by the renewed political tensions, topped with Hong Kong revolts and the US blames on China having created the virus in a Wuhan lab.

Stocks in Tokyo (+1.42%) rallied on government’s plans to spend additional 100 trillion yen to combat the virus-led economic slowdown. The ASX 200 (+1.55%) gained, as Shanghai’s Composite (-0.03%) traded flat and Hang Seng (-1.00%) extended Friday’s sharp losses after protesters hit the streets during the weekend in a largest anti-China manifestation since the beginning of the coronavirus outbreak. US futures traded slightly positive, and the MSCI HK should remain resilient faced with the mounting political pressures in Hong Kong as a result of a significantly weakened exposure to HK-driven revenue, down to 34% from 61% a decade ago according to Goldman Sachs.

Elsewhere, trading volumes will remain weak today as the UK, US and Singapore are closed for bank holiday.
Activity on DAX futures (+0.80%) hint at a positive start in Frankfurt. The German first quarter GDP contracted 2.2% as expected, versus -0.1% printed previously.

But generally speaking, what worried investors before the Covid-19, namely the US-China trade frictions and Hong Kong protests, are back on headlines, but on top of a severely weakened world economy amid weeks of business shutdowns. While the US-China trade war hasn’t prevented most stock indices from reaching their all-time highs before the Covid-led sell-off hit the market place, the re-escalating tensions could hammer the bullish sentiment across the risk assets and continue driving capital toward safety.

By Ipek Ozkardeskaya