Stocks firmer in cautious trade, US-China tensions simmer

LONDON — Global stock markets were mainly firmer on Monday, extending gains as investors kept a wary eye on simmering US-China tensions and continued Democrat-Republican wrangling over a US coronavirus stimulus package.

Wall Street opened slightly higher after positive housing data and as the tech-rich Nasdaq continued to lead the market but then slipped back.

Dealers said the latest figures for new-build single-family homes hit an all-time high, highlighting one of the strongest parts of the US economy despite the upheaval caused by the coronavirus pandemic.

"The demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs," said National Association of Home Builders Chairman Chuck Fowke.

The data offset concerns about US-China relations after high-level talks between Washington and Beijing on the status of their "phase one" trade agreement did not take place Saturday, with no new date set.

US President Donald Trump has continued to ratchet up tensions with Beijing ahead of the November election in the face of opinion polls showing him trailing Democrat Joe Biden in key battleground states.

China on Monday slammed Washington for using "digital gunboat diplomacy" after Trump ordered TikTok's Chinese owner ByteDance to sell its interest in the Musical.ly app it bought and merged with TikTok.

Uncertainty over the status of the trade talks "has added to the frosty situation", noted David Madden, analyst at CMC Markets UK. 

"The lack of agreement between Republicans and Democrats in relation to the stimulus deal remains a concern too."

US stimulus deal expected 

Hopes for any movement before the end of the month are slim, but the consensus opinion is that a deal will eventually be struck.

"Despite the stimulus package appearing to be in a standstill, the markets appear to be taking the view that major fiscal legislation is inevitable," said AxiCorp's Stephen Innes.

While the coronavirus continues to flare up around the world, forcing the reimposition of containment measures, analysts said stocks will likely continue rising thanks to unprecedented backing from central banks.

In Asia, Tokyo's main stocks index closed down 0.8 per cent after data showed a record contraction of the Japanese economy in the second quarter.

"Investors cashed in on recent gains," said Toshikazu Horiuchi, a broker at IwaiCosmo Securities.

"GDP figures were largely within expectations" but reconfirmed the sizable impact of the coronavirus pandemic on the Japanese economy, Horiuchi told AFP.

The April-June GDP figures showed that the economy shrank a record 7.8 per cent quarter-on-quarter.