New US-China ‘Cold War’ plagues global markets

European stock exchanges showed heavy losses on Monday after the long weekend (Friday 1 May was a holiday in most EU countries). The growing fear of a new trade war between the United States and China causes a negative mood on the trading floors.

Stock exchanges in Frankfurt and Paris fell as much as 4 percent at a certain point. In London, where trading did take place last Friday, the FTSE only fell 0.5 percent.

The news that US President Donald Trump claimed to have evidence that the new coronavirus comes from a laboratory in the Chinese city of Wuhan stirs fears for a greater conflict. Trump also alluded to new import charges against China, threatening to rekindle the trade conflict between the two economic superpowers.

That is only the beginning, given the serious economic damage caused by the corona virus. Morgan Stanley estimated last week that the Eurozone economy could shrink by 11 percent in 2020, in Italy it would even hit 15 percent. Later this week UniCredit the largest bank in Italy will report results.

Investors had been ignoring the bleak economic news for the past few weeks, hoping that the central bank’s all-out Federal Reserve money printing could mitigate the impact of the drastic global lockdown on the real economy.

Takeovers

Furthermore, a massive wave of takeovers is likely to be the next phase of this unseen economic crisis. It has actually already started in the oil sector. The state fund of Saudi Arabia took advantage of the chaos in the market to buy into extremely low stock prices in four major European oil companies: Equinor, Total, Eni and Shell.

The Saudi fund also acquired a major stake in the shaky cruise company Carnival and led a group of investors who bought British football club Newcastle United for 300 million pounds.

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