Global stocks pull back from gains on reports China is halting key agricultural imports such as soybean from the US

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• Most stocks rose in early hours of trading on Monday as investors cheered Trump’s dovish response on Hong Kong but reports that China is halting some soybean purchases from US reversed those gains.
• Bloomberg reported China has halted purchases of US products including soybeans and pork.
• On Friday Trump listed a number of measures of how it would punish China for approving a draconian law, but the US fell short of scrapping its phase one agreement with China.
• Analysts think mass violent protests in the US could also weigh on US equity markets in coming days.
• Visit Business Insider’s homepage for more stories.

Stocks reversed earlier gains after major state-owned Chinese agricultural companies have reportedly halted purchases of US products including soybeans and pork, Bloomberg reported as Beijing evaluates its response to growing tensions with the US.

US futures were previously pointing to a positive open, but all three major indexes pointed to a decrease between 0.1 and 0.5% after the Bloomberg report, citing people with knowledge of the matter.  

European stocks also tipped lower with the news. The Eurostoxx 50 and the DAX both moved from positive to negative territory and shed more than 1.50%. 

Beijing had pledged to buy agricultural goods worth  billions of dollars as part of a phase one trade one agreement between both countries. 

Agricultural goods were considered a lifeline to the phase one trade agreement between the US and China, especially after Beijing pledged to step up purchases of agricultural goods in order to calm the rising tension between the two nations.  

Soybeans accounted for more than half of US agricultural purchases in 2017.  The halt is seen as a retalition on part of China and the latest sign that the phase one agreement may be in limbo. 

Most stocks rose in the early hours of trading as investors were relieved Trump took a more dovish stance towards Greater China in a much anticipated speech on Friday and China’s manufacturing showed signs of recovery.

Investors cheer Trump’s dovish response 

Hong Kong’s Hang Seng Index rose as much as much as 3.4% its biggest intra-day jump since mid March. 

Last week, China passed legislation to allow its security forces to operate there and tightened its grip over the island, widely seen as a violation to Hong Kong’s one “one country, two systems” . 

On Friday, the Trump administration responded by listing a spate of ways it would alter its relationship with Hong Kong by announcing plans to investigate Chinese companies on US stock exchanges and sanction individuals involved in enforcing the new Hong Kong security measures, but fell short of scrapping trade talks with China altogether. 

Naeem Aslam, chief market analyst at Avatrade said: “The key takeaway is that Trump’s news conference on Hong Kong’s security law didn’t escalate affairs further between the two superpowers and this is positive for the risk-on sentiment.”

Aslam added: “Had he escalated the tensions between the U.S. and China it would have put the US-China trade deal in jeopardy. This would have also threatened the recovery in both countries—the single biggest threat for the stock markets.”

Here’s the market roundup as of 10.30 a.m. in London (5.30 a.m. ET):

• Asian indexes rose with Hong Kong’s Hang Seng up 3.4%, China’s Shanghai Composite up 2.2%, and Japan’s Nikkei up 0.8%. 
• European equities fell, with Germany’s DAX down 1.65%, Britain’s FTSE 100 up 1%, and the Euro Stoxx 50 down 1.4%.
• US stocks are set to open lower. Futures underlying the Dow Jones Industrial Average, the S&P 500, and the Nasdaq fell between 0.1% and 0.4%.
• Oil prices fell, with West Texas Intermediate down 0.5% at $35.30, and Brent crude is up 0.1% at $37.9
• The benchmark 10-year Treasury yield rose to 0.66%.
• Gold fell 0.15% to $1,749 per ounce.

China manufacturing 

China’s manufacturing output in May rose to its strongest increase in 9 years, showing “renewed improvement” after an ease in restrictions related to the Covid-19 outbreak.

 The IHS Markit China General Manufacturing Purchasing Managers Index (PMI) posted a reading of 50.7, up from 49.4 in April, returning to expansion territory.

Aslam said: “China continues to beat the woes of Coronavirus. While speculators continue to ask this question: are China coronavirus numbers real? The economic data confirm that the Chinese economy has started to recover from Coronavirus.”

Read more: ‘Embrace the coming crash’: A notorious market bear who called the dot-com bust warns big tech stocks are on the verge of succumbing to the economy’s downturn

Neil Wilson, chief market analyst at Markets.com, said: “Market nerves were calmed as Trump held something back and did not reignite the trade war, but we should nevertheless stress that US-China tensions are expected to deteriorate over the coming months as Trump doubles down ahead of the presidential election.”

He added:  “China has responded this morning with comments from the foreign ministry this morning offering the usual non-descript warnings of ‘countermeasures’ and advice to the US to just butt out.”

Wilson pointed US stocks completed a very solid month for Wall Street as both the Dow and S&P 500 finished 4% higher, while the Nasdaq was up almost 7%.

Violent protests are taking place across the US in recent days after the killing police officers killed George Floyd, an unarmed black man last week. 

Read more: BANK OF AMERICA: Buy these 13 under-the-radar tech stocks poised to outperform amid flaring China tensions and lasting pandemic damage. 

Aslam said this could weigh on US equity markets which have sharply rebounded in recent weeks. 

“The fact is that if the social unrest situation isn’t addressed it can prolong the recovery process in the U.S. The Federal Reserve has worked hard to restore confidence in the US equity markets and if investors continue to see National guards and threats of curfew, it would hurt their confidence level,” he said.