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Market Tumbles on Hong Kong Tensions

Zacks Equity Research

Overnight, markets around the world began to sell off as news from mainland China appeared to throw a blanket over our weekly rally. Beijing reportedly looks to pass legislation restricting protest activity in Hong Kong — where months’ long protests broke out between Hong Kong citizens and mainland police over a variety of issues, including whether citizens arrested in Hong Kong should face trial on the mainland.

New protests were called in Hong Kong following Beijing’s announcement that it intends to crack down on “secession, subversion, terrorism and foreign interference” in the city. The Chinese government also intends to install intelligence agencies within the city of Hong Kong, which hearkens back to protestors’ challenging the mainland’s law enforcement overreach there.

Hong Kong, a British colony until 1997, has always set itself apart from the rest of China in terms of financial business, trade with the outside world and law-making autonomy. Mainland China appears to be turning toward Hong Kong’s economic prowess to help the country recover from the lockdown measures that took a hammer to China’s GDP over the past several months.

Throwing fuel on the fire, the Trump administration has publicized its intent to sell American torpedoes to Taiwan — another island with deep and serious issues with China. In fact, Taiwan is not called Taiwan in China at all; it’s Chinese Taipei. Arming this island — with its own relatively robust economy — is surely to be taken as a provocation by the U.S. towards Beijing’s interests. And this is before noting President Trump has been verbally disparaging China for weeks, continually reminding the American public that COVID-19 originated in a central Chinese province.

The Hang Seng Index in Hong Kong fell 5.5% Friday. This, in turn, took European markets flat-to-down. Pre-market indexes here at home, however, are flat. This is a morning without much in the way of major economic reports to help direct the sentiments of the market.

Deere & Co. DE outperformed estimates on both top and bottom lines this morning, with $2.11 per share beating the $1.94 in the Zacks consensus, and $9.3 billion in quarterly revenues surpassed the $8.01 billion expected. On the earnings side, this represents a 40% drop from $3.52 per share reported in the year-ago quarter. Revenues are down 18% year over year. Shares are up 3.5% in today’s pre-market on the news; Deere is still down double-digits from a year ago, although outperforming its Heavy Machinery industry.

Zacks Rank #5 (Strong Sell)-based Foot Locker FL missed badly on both earnings and sales in its Q1 report, posting a bottom line loss of 67 cents per share, compared with the -17 cents in the Zacks consensus, on $1.18 billion in sales which came up 10.6% short of estimates. The stock, down almost 25% year to date, is down another 9.5% ahead of the opening bell.

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