July 23, 2020 / 11:50 PM / 18 days ago

Shares retreat globally on U.S.-China tensions, gold soars

NEW YORK/LONDON (Reuters) - Shares worldwide skidded further on Friday as a pickup in U.S. and European business activity did little to ease jitters about rising U.S.-China tensions, while gold broke above $1,900 an ounce on its march toward a record high.

FILE PHOTO: A man wearing a face mask is seen inside the Shanghai Stock Exchange building, as the country is hit by a novel coronavirus outbreak, at the Pudong financial district in Shanghai, China February 28, 2020. REUTERS/Aly Song/Files

In a tit-for-tat move, Beijing ordered Washington to close the U.S. consulate in Chengdu in retaliation for China being told earlier this week to shut its consulate in Houston.

Data showing business activity in the euro zone returned to growth failed to cheer investors. German manufacturing avoided contraction for the first time in 19 months in July with a notable upturn in sales abroad.

U.S. data also failed to impress. U.S. business activity rose to a six-month high in July, but companies reported a drop in new orders as a resurgence in new COVID-19 cases across the country weighed on demand.

Technology stocks .SX8P such as SAP SE (SAPG.DE) and ASML Holding NV (ASML.AS) led losses in Europe, while Germany’s export-heavy DAX index .DAX slumped 2%.

A 16.2% slide in Intel Corp (INTC.O) shares after the company said it was six months behind schedule in developing a next-generation, power-efficient chip led U.S. stocks lower.

While a concern, U.S.-China relations are unlikely to get out of hand and equities will continue to grind higher, said Teresa Jacobsen, a managing director at UBS Private Wealth Management in Stamford, Connecticut.

“To some extent this is saber-rattling because we have an election coming,” she said. “It’s really in everyone’s interest to resolve these issues. It’s not good for us, it’s not good for anyone else.”

(Graphic: US-China tensions - here)

MSCI’s benchmark for global equity markets .MIWD00000PUS slid 0.81%, while emerging markets stocks .MSCIEF fell 1.57%.

On Wall Street, the Dow Jones Industrial Average .DJI fell 0.68%, the S&P 500 .SPX lost 0.62% and the Nasdaq Composite .IXIC dropped 0.94%.

Overnight in Asia, Chinese blue chips .CSI300 retreated 4.4% to wipe out a week of gains. The Chinese yuan CNH=EBS, a barometer of Sino-U.S. relations, posted its worst week since mid May.

Gold resumed its march toward a new record peak, scaling $1,900 for the first time since August and September 2011, when spot prices only traded above that level on four days. The rally has been driven by fears of an economic hit from the pandemic.

Spot gold prices XAU= rose $14.6746 to $1,901.54 an ounce, about $20 from an all-time peak in 2011.

U.S. gold futures GCv1 settled up 0.4% at $1,897.50.

(Graphic: Golden Ascent - here)

Analysts at RBC Capital Markets noted gold-backed exchange traded product holdings had already reached record peaks.

“The level of COVID-19 uncertainty, low and negative real and nominal rates, politics and geopolitics have driven gold prices sharply higher, and pushed allocations among investors ever higher,” they said in a note.

The U.S.-China row put copper - a prime Chinese import - on track for its first weekly loss since mid-May, but analysts expect recovering demand and low stocks to keep prices high.

Silver, meanwhile, was en route to its best week since 1987, up almost 18% in five days.

Oil prices edged higher, supported by a weaker dollar. But U.S.-China tensions and wider economic uncertainty weighed.

Brent crude futures LCOc1 settled up 3 cents at $43.34 a barrel. U.S. crude futures CLc1 rose 22 cents to settle at $41.29 a barrel.

Slideshow (2 Images)

The euro EUR= advanced 0.44% to $1.1645, strengthened by the European Union's approval on Monday of a 750 billion-euro ($857 billion) recovery fund to revive the region's economies.

The Japanese yen strengthened 0.87% versus the greenback at 105.96 per dollar, while the dollar index =USD fell 0.43%, almost a two-year low.

The 10-year U.S. Treasury US10YT=RR note rose 0.4 basis points to 0.5856%.

Reporting by Herbert Lash; editing by Jonathan Oatis

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