Chinese stock winning streak ends after state media changes tone

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Friday stocks in Europe and the United States swung between gains and losses after Chinese stocks broke an eight-day winning streak.

The CSI 300 index of stocks listed in Shanghai and Shenzhen recorded its largest weekly increase in five years despite the closing of the benchmark index of 1.8% on Friday. Chinese stocks ended the week up 7.5%, the largest percentage jump since June 2015.

The promising results of a possible Covid-19 treatment helped futures transactions to weaken on Wall Street, the S&P 500 opening at 0.1%. Gilead Sciences’ latest trial of its experimental drug remdesivir found a 62% reduction in the risk of death in patients with coronavirus compared to the standard of care.

The tech-rich Nasdaq opened flat, hitting a historic high on Thursday, while the Dow Jones Industrial Average edged up 0.1%.

Friday, European stocks reversed expected losses to recover. The Stoxx Europe 600 climbed 0.7% in afternoon trading, which puts the regional benchmark on track to finish almost unchanged for the week. The London FTSE 100 advanced by a similar margin.

Investors sought the relative security of safe haven assets such as basic public debt, as this week’s reports of increased coronavirus cases and deaths were threatening to undermine a fragile US recovery.

The 10-year US Treasury yield fell to 0.50%, its lowest level since April. Yields move inversely with prices. Gold, another asset bought by investors as insurance against market turmoil, gained 0.3% after breaking $ 1,800 a troy ounce this week.

UK government borrowing costs dropped to new all-time low on Friday as a global bond rally pushed short-term debt yields further below zero. Five-year gilding yields fell to minus 0.09%, while two-year yields fell to minus 0.13%.

Chinese stocks have rallied sharply in recent days to post a seventh consecutive week of gains, retail traders, encouraged by state media on Monday, have piled up in the market. But traders pointed to a change in tone by Chinese state media and signs of sales by big investors as reasons for a change in sentiment on Friday.

In a Thursday editorial, the China Securities Journal reminded investors of the volatility of the stock market five years ago that had caused stocks to fall. Traders also interpreted the sale by a large state pension fund of the shares of one of China’s premier insurance companies as a bearish signal.

Elsewhere in the Asia-Pacific region, the Hong Kong Hang Seng index fell 1.8% while the Japanese Topix fell 1.4%.

After stocks rebounded from a low in March, US and European stocks traded volatile in the past month. Record rebounds in economic data, from industrial production to purchasing manager indices, have helped to offset the pessimism in the face of the increase in the number of virus cases.

Three US solar belt states – California, Texas and Florida – on Thursday recorded their largest one-day increase in coronavirus-related deaths since the start of the pandemic.

Georgina Taylor, fund manager at Invesco, said markets are responding to improved data as if it were a typical cyclical recovery. But she warned that “the rebound in economic indicators is not necessarily aligned with a strong economic recovery”.

She added that bearish sentiment was mounting as governments appeared more and more likely to reverse the stimulus package, although large-scale closings may be needed again to stop the spread of the virus.

Oil prices have remained stable after a warning from the International Energy Agency that rising virus cases in some parts of the world “cast a shadow” over the recovery in the oil market. Crude Brent, the international benchmark, traded at $ 42.34 per barrel.

Additional reporting by Anjli Raval and Tommy Stubbington

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