MANHATTAN (CN) — In Washington, D.C., clouds of tear gas bloomed in front of the White House. In Los Angeles, police wrongfully arrested store owners as looters fled along Van Nuys Boulevard. In St. Louis, four police officers were shot after a peaceful protest descended into chaos.
But on Wall Street, it’s business as usual, as markets continue to rise.
By the closing bell on Tuesday, the Dow Jones Industrial Average gained 267 points, a 1% increase, while the S&P 500 and Nasdaq had slightly lesser gains.
Markets abroad did far better on Tuesday, unperturbed by growing civil unrest. Most major markets in Asia closed up about 1%, while in Europe markets did far better, with Germany’s DAX closing 3.7% up, France’s CAC finishing up 2%, and the pan-European Stoxx 600 up 1.5%.
“The only thing that seems to derail this market is the prospect of further U.S.-China tensions,” Boris Schlossberg of BK Asset Management wrote in an investor’s note. “Not the specter of civil unrest in every major U.S. city. Not the possibility of 20% of U.S. small businesses closing their doors forever. Not even the disturbing trend of rising Covid infections in such key states as Texas have had any impact on the relentless rally in equities.”
If the unrest continues, equities could start to take notice, some say. In a Tuesday blog post, University of Oregon economist Tim Duy wrote that, if President Trump follows through on warnings he would use the military to quell protests and riots, then investors may be shaken. “Needless to say, widespread military action against U.S. citizens coupled with a resurgence in Covid-19 cases would be … bad,” Duy wrote. “The psychology could turn against equities quickly, just as it did in March.”
CNBC personality Jim Cramer said on Monday that it is not completely unsurprising the market is currently ignoring the protests because it “does not care” about social justice or unrest.
“They want the market to be part of the debate,” Cramer said. “That’s not how it works. The truth is the market’s blind because it has no eyes. It’s deaf because it has no ears. It’s a convenient abstraction, not a person with opinions.”
While the markets may, in fact, be earless and eyeless, they still have kept a proverbial finger on the pulse of U.S.-Sino relations, which have grown worse since China’s congress approved its proposal to impose new security laws banning secession and foreign interference in Hong Kong, threatening to end the “one country, two systems,” policy that has been in place since 1997.
The Trump administration has announced plans to eliminate current policy exemptions for Hong Kong, from extradition treaties to export controls and the use of duel-use technologies. The administration also has threatened to sanction individual members of China’s ruling party.
Some analysts think President Trump’s threats from last week amount to nothing more than “bluster,” given that nearly all exports from Hong Kong are produced elsewhere and then re-exported to global markets.
Nicholas Lardy of the Peterson Institute for International Economics wrote on Monday that, “because exports to the United States of goods produced in Hong Kong account for only one-tenth of 1 percent of Hong Kong’s output, even if higher tariffs cut this flow entirely, the effect on the Hong Kong economy would be imperceptible.”
After the White House threats on Friday, China counterpunched and reportedly ordered state-run companies to stop buying soybeans and pork from U.S. farmers. Investors were cheered, however, by an article in Tuesday’s Global Times, an English-language tabloid run by China, that said soybean purchases have been unaffected by diplomatic tensions. But sources cited in that article warned that China is not beholden to U.S. farmers.
“We don’t have to buy U.S. soybeans,” Sun Beiguo, dean of the Beijing-based Chuanglian Agricultural Sciences Institute, was quoted as saying in the article. “We could shift to Brazil and Argentina if China-U.S. conflicts escalate.”
Corporate America has also been pushing to decouple from China.
“Many firms have recognized that they have might have put too many eggs in the same basket with the manufacturing supply chains in China,” Jayashankar Swaminathan, a professor at University of North Carolina’s Kenan-Flagler Business School, said during a webcast on Tuesday.
Swaminathan noted that many firms are now looking to India, Mexico and Vietnam as alternative manufacturing sites.
The tensions between China and the United States now threaten the $200 billion trade deal between the two countries, which some experts say has become an albatross for all involved.
Relations between the United States and China are not likely to improve anytime soon, especially with reports that China in January delayed releasing crucial information on the coronavirus to World Health Organization officials.
The number of people infected worldwide with Covid-19 since late 2019 has grown to nearly 6.3 million, while 377,000 have died. according to data compiled by Johns Hopkins University. In the United States, 1.8 million are confirmed to have contracted Covid-19, while 105,000 have died.Follow @NickRummell
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