22:25 GMT07 August 2020
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    China’s Foreign Ministry ordered Washington to close down the US Consulate in the city of Chengdu, with the tit-for-tat move coming days after US officials moved to shutter the Chinese Consulate in Houston, Texas amid allegations that its employees were engaged in systemic espionage and theft of US intellectual property.

    European stocks fell sharply on Friday morning, with the pan-European STOXX 600 index shedding over 2.1 percent of its value in early trading before partially recovering, but was still down over 1.37 percent as of noon.

    Germany’s DAX index and France’s CAC were similarly down, opening 2.2 percent and 2.1 percent down, respectively, before making up some of their losses, and standing at -1.5 and -1.3 percent down relative to Thursday’s close.

    The European markets’ drop follows a similar bloodletting in Asian markets amid the ongoing US-China consulate war, the latest round of tensions between Washington and Beijing in a long-running dispute related to trade, technology theft and electronic surveillance allegations, and geopolitical tensions over Hong Kong, Taiwan, and the South China Sea.

    China’s Shanghai Composite Index slumped by -3.86 percent, with Hong Kong’s Hang Seng dropping -2.2 percent in overnight trading.

    AxiCorp chief global markets strategist Stephen Innes told Reuters that European equities may drop further, particularly tech stocks, “especially if the White House stops giving US corporates a free pass in their dealings with China.”

    “What ultimately matters for growth assets is whether a geopolitical escalation morphs into economic beatdowns,” he stressed.

    Spreadex analyst Connor Campbell told Market Watch that the fear among brokers “is that this might only be the start of a reescalation in tensions between the two superpowers.”

    US markets suffered their own losses Thursday amid the continued rise in US unemployment numbers and worries about how the economy would fare amid growing COVID-19 infection rates, with the Dow down 1.3 percent, and the tech-heavy Nasdaq Composite Index dropping 2.3 percent, although the S&P 500 settled up 1.2 percent. The losses included a major shedding of value for US tech giants Apple, Microsoft, Amazon and Facebook, which lost 4.6, 4.4, 3.7 and 3 percent of their value, respectively.

    The Fearless Girl statue is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., June 11, 2020.
    © REUTERS / Brendan McDermid
    The Fearless Girl statue is seen outside the New York Stock Exchange (NYSE) in New York City, New York, U.S., June 11, 2020.

    Major economies around the world have projected severe contractions for 2020 owing to the economic crisis sparked by lockdowns, retail and factory closures instituted to battle the coronavirus pandemic. In June, the International Monetary Fund predicted that the world economy would shrink by 4.9 percent in 2020. The European Union estimates that its 27 member states’ GDP may fall by up to 8.3 percent this year before rebounding in 2021. The World Bank predicted that Russia’s economy may shrink by 6 percent. The US’s economy shrank by 5 percent in the first three months of 2020 – its sharpest decline since the 2008/2009 financial crisis. China, meanwhile, reported a 1.6 percent drop in GDP in the first half of 2020, but expects to close the year in the green due to a strong rebound which began in the second quarter.

    The US-Chinese consulate closing frenzy may escalate, with President Donald Trump hinting that more of China’s diplomatic missions may be targeted, and Beijing reportedly considering shuttering the US consulate in Wuhan.

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