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Stocks shake off concern over U.S.-China tensions

The Wall Street sign near the New York Stock Exchange on Aug. 5, 2011.
(Stan Honda / AFP/Getty Images)

U.S. stocks staged a late rally Wednesday as hopes of a faster economic recovery overcame concerns over the relationship between the U.S. and China.

The Standard & Poor’s 500 index finished the day 1.5% higher, closing above 3,000 for the first time in 12 weeks. Other global equity benchmarks also rose, with London’s FTSE 100 gaining 1.3% and the benchmark Euro Stoxx 600 closing 0.2% higher.

However, investors and analysts remained wary after signs of a fresh bout of tension between Washington and Beijing over Hong Kong, as the U.S. said it no longer considered the city to be autonomous of China.

China’s currency fell by the most in three weeks in the wake of the country’s plans to impose a sweeping national security law on Hong Kong. The renminbi weakened 0.46% to 7.17 yuan to the U.S. dollar, its lowest level since September 2019.

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Despite the gains in equities, the yield on the 10-year U.S. Treasury bond fell 0.013% as investors continued to seek out safe assets.

The Federal Reserve’s Beige Book, a survey of economic conditions, highlighted the extent of the effect of coronavirus on the U.S. economy and noted that the outlook remained highly uncertain.

Such fears have dulled a little of the optimism of recent weeks that a deluge of fiscal and monetary stimulus measures from countries around the world would help prop up the global economy.

Brussels plans to seek the power to borrow as much as 750 billion euro in a vast spending program to pump money into the bloc’s worst-hit economies.

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The head of the EU’s executive commission says that the proposed new recovery fund is an ‘ambitious answer’ to Europe’s coronavirus challenge.

The yield on government debt from Italy and Spain fell and the euro rallied. The gap between the yield on Italian and German 10-year bonds, which shows the premium traders are demanding to buy Italian debt, fell to below 200 basis points, its lowest level since early April.

Also on Wednesday, Japan’s cabinet approved a $1.1-trillion fiscal stimulus plan, which comes on top of another package already in place.

The proposed spending programs by the EU and Japan are just the latest efforts by global governments and central banks to prop up economies that have been dealt a serious blow by coronavirus.

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Analysts said the cautious easing of lockdowns across big economies and the absence of a much feared “second wave” of infections had also boosted traders’ appetite for assets more exposed to consumer spending in the summer.

Travel and leisure stocks, which have been among the worst hit since the coronavirus crisis began, posted big gains for the second day. Alaska Air, American Airlines and cruise ship operators Royal Caribbean and Carnival led the way higher.

Hong Kong’s Hang Seng index slipped 0.4% as demonstrators and riot police clashed. Protests that had been kept at bay by the coronavirus pandemic re-erupted after Beijing’s move and a separate law that could result in prison sentences for insulting China’s national anthem.

Oil prices lost some ground after rising Tuesday following reports that Russia’s energy minister had met the country’s petroleum producers to discuss deeper production cuts in the second half of the year.

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Brent crude, the international benchmark, fell 1.1% to $35.16 a barrel, while West Texas Intermediate, the U.S. marker, dropped 3% to $33.26 a barrel.

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