(A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.)
* Note: There will be no Morning Bid on Monday, May 25, because of a public holiday in the UK. Things have taken another turn for the worse between the world's two superpowers. Escalating rhetoric from President Donald Trump hit Wall Street yesterday, but Asian markets today are red all over following China's proposal for a new Hong Kong law to ban sedition, secession and treason. That will almost certainly reignite protests in Hong Kong and drive another wedge with Washington.
The Hang Seng index plunged 5% at one point and the Hong Kong dollar slid the most in six weeks. Broader Asian shares lost 1%. World stocks are down around 0.7%, but that may pick up steam as a pan-European index is down 1.5% and Wall Street is expected to open weaker. The offshore yuan is approaching a three-week high beyond 7.14, and mainland blue-chip shares have fallen almost 2%.
Another headwind – China dropped its annual growth target for the first time since 1990, with Premier Li Keqiang warning of "unpredictable factors".
Overall, the risk-off mood sent 10-year U.S. Treasury yields to a four-day low and the dollar index marching higher for a second day. Beijing's failure to publish growth targets has sent commodity prices reeling, in turn inflicting losses of 0.7% to 1.3% on currencies such as the Aussie dollar, South African rand, Norwegian crown and Russian rouble. The euro is off yesterday's two-week highs.
The setbacks have put paid to hopes of a market rebound as economies re-open. That COVID-19 risks remain alive was shown by India, which posted its biggest ever 24-hour rise in new infections after easing its lockdown. Without a vaccine, there seems little chance economic activity can normalise -- Federal Reserve Chair Jay Powell warned again yesterday of a "downturn without modern precedent".
In another sign of the times, India cut its benchmark repo rate by 40bp to 4% in an unscheduled move.
We get minutes from the European Central Bank's last meeting -- interesting given markets widely expect the bank to expand its emergency stimulus programme on June 4. All eyes are also on next week's European Commission meeting, which will debate the Franco-German proposal for a joint recovery fund. The proposal, marking a huge change in the German stance, has already pushed Italian yields into their biggest weekly fall in two months.
The UK negative interest rate debate is being kept alive by miserable economic data, not least the record 18% crash in April retail sales. Sterling is again below $1.22 and seven-year UK borrowing costs have just gone negative.
"Real" gilt yields, read from inflation-linked debt, bear watching – these have collapsed 60 to 80 basis points since mid-March, with 10-year linkers yielding minus 2.9%, Tradeweb data shows.
In European corporate news, stocks exposed to Hong Kong -- HSBC, StanChart and various luxury firms -- are suffering. Burberry reported a 27% quarterly drop in comparable sales, and pulled its final dividend.
Abu Dhabi's Etihad Airways is planning to lay off 1,200 employees as it considers permanently grounding its Airbus A380s and never operating the A350s it has ordered. Fiat Chrysler said auto sales in Brazil were down 70% to 75% in May versus a year ago. Carmaker Nissan is considering 20,000 job cuts.
On bonuses and dividends -- Lloyds Banking Group investors rebelled against its policy for top bosses. United Utilities Group posted a 9% rise in full-year operating profit, but will review its 5-year dividend policy.
Equity-raising continues -- On The Beach Group will raise around 20% of its share capital, while Time Out magazine is launching a share sale to cut debt.
In emerging markets, a big day for Argentina, which will mark its ninth sovereign debt default by missing a $500 million debt payment. But good news for Ukrainian bonds: the country signed a new $5 billion, 18-month stand-by deal with the International Monetary deal.