European stocks fell on Friday, with investors spooked by news that China will tighten control over Hong Kong with a new security law, sparking fears of fresh unrest and an added stress on Beijing and Washington relations.
The Stoxx Europe 600 index fell 1.3% to 335.82 after a 0.8% drop on Thursday. The index is still up 2.2% for the week. Elsewhere, the German DAX and French CAC 40 fell around 1.3% each and the FTSE 100 index dropped 1.7%.
Appetite for riskier assets such as stocks was dented across the board, with Dow futures falling over 200 points and Asian equities down, led by a 5.4% drop for the Hong Kong Hang Seng. U.S. and European benchmark crude prices fell 7% and 5%, respectively.
“A controversial new security law in Hong Kong and no China GDP forecast are refueling the concerns over U.S.-China relations. Hostilities between the two biggest global economies have unearthed some caution in the second half of the week,” said Jasper Lawler, head of research at London Capital Group, in a note to clients.
China’s plans to introduce strict new security measures in the territory sparked concerns over the return of protests that rocked the region last year. Investors also fear China’s move will add to rising tensions with the U.S. — President Donald Trump told reporters on Thursday that the U.S. would react “strongly” toward those moves on Hong Kong.
That is as coronavirus concerns remain an issue for global markets. China’s top economic official said the government won’t set a growth target and vowed higher spending to help fight the virus and repair the damaged economy.
Elsewhere, U.K. British retail sales recorded their biggest monthly drop on record in April, while government borrowing ballooned due to the country’s lockdown aimed at stopping the spread of the new coronavirus.
The banking sector led losses, with HSBC Holdings in the spotlight over Hong Kong tensions, with those shares dropping 5%. Shares of UBS Group fell over 3%.
Luxury goods makers that rely on China and Hong Kong for a chunk of sales, also saw losses. Shares of LVMH Moët Hennessy fell 2%, while shares of Swatch Group fell 2.7%.
Burberry Group bucked a weaker trend for the luxury goods sector, with shares up nearly 2%, though the company reported a significant fall in pretax profit for fiscal 2020.