By Peter Nurse
Investing.com - European stock markets sold off sharply at the open Friday as China published a draft law proposal that could spell the effective end of Hong Kong's special status, risking further civil disorder there and profound negative consequences for relations between China and the West, especially the U.S.
At 3:40 AM ET (0705 GMT), the DAX in Germany traded 1.2% lower, France's CAC 40 was down 1.1%, while the U.K.'s FTSE index was down 1.7%.
Overnight, China announced plans to impose new national security legislation on Hong Kong to tighten its grip on the semi-autonomous city.
The decision drew a warning from President Donald Trump that Washington would react "very strongly" against the attempt to gain more control over the former British colony. The U.S. Senate published a bill with bipartisan support that would sanction Chinese officials who implement the law.
Washington has already stepped up its rhetoric against China over the coronavirus amid other points of difference in recent weeks. This has raised concerns that the trade deal signed between the two countries in January could soon be dismissed, bringing back the trade war which roiled the markets for much of last year.
Adding to the woe was the news that China has decided not to set an economic growth target for 2020, for the first time in decades, due to the uncertainty surrounding the coronavirus pandemic. This has raised fears that the economic slowdown in the world's second largest economy could last longer than previously expected.
China-exposed stocks were among the hardest hit, with HSBC (LON:HSBA) falling 5.0% and Standard Chartered (LON:STAN) falling 4.0%. Luxury goods makers, who derive a large part of their sales from China and Hong Kong, were also hit, with Richemont (SIX:CFR), the owner of Cartier, falling 3.4% and Gucci owner Kering (PA:PRTP) falling 1.9%.
In corporate news, Renault (PA:RENA) dropped 3.5% after France's Finance Minister Bruno Le Maire said that the French carmaker could disappear if it does not get help very soon to cope with the fallout from the coronavirus crisis.
Close Brothers (LON:CBRO) fell 4.3% after the financial services company warned that its third-quarter earnings would be marked by impairment charges due to the pandemic.
Economic data releases are thin on the ground Friday, but what we have seen from the U.K. has been pretty dire.
Britain's government borrowed more than it has done in any month on record in April, while retail sales fell by a record 18% as the coronavirus lockdowns hammered the economy.
The crude oil market sold off sharply at the end of a strong week, due to the news coming out of China, the largest importer of oil in the world.
At 3:40 AM ET, Crude Oil WTI Futures traded 6.6% lower at $31.68 a barrel. The international benchmark Brent Oil Futures contract fell 5.5% to $34.08.
Elsewhere, gold futures rose 0.8% to $1,735.10/oz, while EUR/USD traded at 1.0914, down 0.3%.