Global stocks stumbled and the renminbi retreated after an escalation in diplomatic friction between the US and China and a darker assessment on Covid-19 from President Donald Trump.
The Stoxx 600 index of European stocks fell more than 1 per cent, and the dollar pushed above 7 against the Chinese currency after the US asked Beijing to shut its consulate in Houston and local media reports showed what appeared to be consulate staff burning documents.
US stock futures reflected the more cautious tone, with S&P 500 futures dropping 0.5 per cent.
The latest escalation in US-China tensions came after Mr Trump said on Tuesday that the tally of cases in the US would “get worse before it gets better”, a comment taken as an acceptance on his part of the severity of the pandemic that he previously said would “just disappear”. Infections in California surpassed 400,000 while caseloads in other sunbelt states have pushed higher in recent weeks.
Japan’s Topix index slipped 0.6 per cent on Wednesday, while Australia’s S&P/ASX 200 fell 1.1 per cent. Hong Kong’s Hang Seng was off 0.4 per cent.
None of this has yet to put an end to the rally in US corporate bonds, however, with the yield on higher-rated investment-grade sinking to 1.99 per cent on Tuesday, according to an index run by Ice Data Services. This marks the first time the index has ever fallen below 2 per cent, as debt markets remain supported by the Federal Reserve, helping borrowing costs to decline.
Uncertainty over the trajectory of the health crisis fuelled demand for certain haven assets. Gold jumped 0.7 per cent to $1,857.70 per troy ounce — a nine-year high. US government bonds held firm, with the yield on US 10-year Treasuries down slightly at 0.59 per cent.
Oil prices fell. West Texas Intermediate, the US marker, slipped 0.2 per cent to $41.84 a barrel. Brent, the international benchmark, was flat at $44.30 a barrel.
Additional reporting by Joe Rennison