Sino-U.S. tensions knock world shares off 22-month high

LONDON — World stocks were knocked off 22-month highs on Wednesday as a flareup in Sino-U.S. tensions and the creeping return of U.S. recession fears fueled a bid for bonds and other “safe” assets such as gold.

Wall Street futures were marked lower and European equities tumbled 0.8%, edging further off recent four-year highs hit when it had appeared Washington and Beijing were about to agree the first phase of a trade deal. The mood in markets soured after the U.S. Senate angered China by passing a bill requiring annual certification of Hong Kong’s autonomy and warning Beijing against suppressing protesters. China demanded the United States stop interfering in its internal affairs and said it would retaliate.

U.S. President Donald Trump also threatened to up tariffs on Chinese goods if a trade deal is not reached soon.

“Markets have taken a bit of a wobble due to the talk about Hong Kong, but they had rallied a lot in recent weeks on expectations of a (trade) deal,” said Salman Ahmed, chief investment strategist at Lombard Odier.

Ahmed said both sides needed a deal to be signed -- Trump cannot afford a recession because of his re-election bid next year, while China’s economy is slowing markedly. “I think we are looking at a short-term setback rather than a major issue that would derail the process. The bill still has to be signed into law by Trump so there’s a high probability he will use it as leverage against China.”