US stock indexes dropped on Friday as Sino-US tensions weighed on markets struggling to gauge the pace of economic recovery from the coronavirus.
Stocks dipped in early Friday trading following signs that China's economic recovery may not be as strong as hoped.
By 5:40 a.m. ET, U.S. West Texas Intermediate (WTI) crude futures lost $1.89 a barrel, or 5.57% to $32.03.
China says it will impose new national security laws on Hong Kong that are expected to lead to more protests and further tension with the U.S.
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"Although both sides [U.S. and China] highlighted overnight progress on trade deal implementation and the intention to keep it going, the overall relationship is deteriorating fast", wrote Sebastien Barbe, the head of emerging-market research and strategy at Credit Agricole CIB. Stocks in Europe closed mostly flat and on Wall Street finished mixed as investors prepared for a long weekend in the United States, the UK and elsewhere.
"It's a bit of a push-pull as there's some positive news from a healthcare perspective at least, but then we also have the rhetoric ramping up with China", said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. "It's anticipating improvement and we've seen all the bad news".
Fresh hopes for a USA economic recovery in the second half of the year and optimism about a potential vaccine for COVID-19 helped spur stocks higher much of the week.
Meanwhile, the State Department announced that it had approved the sale of advanced torpedoes to the Taiwanese military, a move sure to draw a rebuke from Beijing, which regards the island as a renegade province. On Friday, some of the simmering tensions between the US and China escalated. "If oil sells off, it's hard to have a strong stock market", said Ed Moya, senior market analyst at OANDA in NY. Energy stocks fell the most as crude oil prices closed lower after six straight gains.
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"There's just too much uncertainty, and that's going to likely keep on weighing on risk appetite", Moya said.
The Dow Jones Industrial Average fell 101.78 points, or 0.4%, to 24,474.12.
The S&P 500 gave up 0.8%, but is on track to close out the week with a weekly gain.
The three main USA stock indexes have kept to a tight range in May, but are still on course for weekly gains between 2.5 percent and 2.8 percent. Britain's FTSE 100 fell 0.5%.
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Analysts said extensive central bank stimulus continues to underpin sentiment and buoy equity markets. Brent crude, the worldwide futures benchmark, fell 85 cents, or 2.4%, to $35.21 a barrel. Brent LCOc1 settled at $35.13, down 93 cents on the day. Caterpillar and JPMorgan Chase slid 1.39% and 0.78, respectively. The Japanese yen JPY= strengthened 0.01% versus the greenback at 107.62 per dollar. The yield on the 10-year U.S. Treasury bond fell to 0.649%, from 0.677% Thursday.