(29 MAY 2020)DAILY MARKET BRIEF 1:Financials, tech hit by HK tensions, Trump attack.

The US stock indices turned negative in Thursday’s session as the rising tensions around Hong Kong’s new national security law and Donald Trump’s attacks on social media companies led to some profit taking after American stocks advanced to highest levels in almost three months.

Financials and tech stocks suffered the biggest losses in New York. Twitter slid 4.45% as Donald Trump signed an executive order to remove some of the legal protections that social media companies enjoy after Twitter announced to fact-check his tweets earlier this week. Facebook (-1.61%) followed up on Twitter’s losses, while Snap rallied 7.35% on hope that Twitter’s misfortune could be a window of opportunity for its competitors. Trump’s personal fight against social media companies will likely remain short lived if his allegations are unjustified. But the fact that the Covid recovery could now cause a decent profit-taking in technology companies and move capital towards sectors which should benefit more from the business reopening is a major risk for the US tech stocks. Lower appetite in technology stocks could also slowdown the overall recovery, given the high market share of tech stocks in indices.

Financials, on the other hand, are under the pressure of mounting tensions between the US and China as US officials said they are ‘not happy’ with Hong Kong’s new national security law restricting rights and freedoms. US officials said they will announce their response to the new law on Friday. US reaction will likely put Hong Kong’s special status as a global financial hub in danger, worsening the already tense relationship with China. HSBC Holdings (-2.16%) has been among the leading losers in Hong Kong on Friday, Bank of China slid 0.70%.

The deteriorating market sentiment weighed on most major Asian indices, as well. Stocks in Tokyo and Sydney retreated 0.25% and 0.70% respectively on mixed economic data. Shanghai’s Composite eased 0.11% as Hang Seng extended losses by 0.68% before what could be another chaotic weekend in the streets of Hong Kong, while there is a mounting risk of a military intervention from China.

Activity in FTSE (-0.71%) and DAX (-1.12%) hints that the European stocks could reverse a part of this week’s losses before the weekly closing bell. Financials should continue feeling the pinch of Hong Kong worries, as we can see a deeper downside correction across the energy stocks on stagnating oil prices.

By Ipek Ozkardeskaya