Shares retreat globally on US-China tensions, gold soars

Shares worldwide skidded further on Friday as a pickup in US and European business activity did little to ease jitters about rising US-China tensions, while gold broke above $1,900 an ounce on its march toward a record high.

In a tit-for-tat move, Beijing ordered Washington to close the US consulate in Chengdu in retaliation for China being told earlier this week to shut its consulate in Houston.

Data showing business activity in the euro zone returned to growth failed to cheer investors. German manufacturing avoided contraction for the first time in 19 months in July with a notable upturn in sales abroad.

US data also failed to impress. US business activity rose to a six-month high in July, but companies reported a drop in new orders as a resurgence in new Covid-19 cases across the country weighed on demand.

Technology stocks such as SAP SE and ASML Holding NV led losses in Europe, while Germany's export-heavy DAX index slumped 2%.

A 16.2% slide in Intel Corp shares after the company said it was six months behind schedule in developing a next-generation, power-efficient chip led US stocks lower.

While a concern, US-China relations are unlikely to get out of hand and equities will continue to grind higher, said Teresa Jacobsen, a managing director at UBS Private Wealth Management in Stamford, Connecticut.

"To some extent this is saber-rattling because we have an election coming," she said. "It's really in everyone's interest to resolve these issues. It's not good for us, it's not good for anyone else."

MSCI's benchmark for global equity markets slid 0.81%, while emerging markets stocks fell 1.57%.

On Wall Street, the Dow Jones Industrial Average fell 0.68%, the S&P 500 lost 0.62% and the Nasdaq Composite dropped 0.94%.

Overnight in Asia, Chinese blue chips retreated 4.4% to wipe out a week of gains. The Chinese yuan, a barometer of Sino-US relations, posted its worst week since mid May.

Gold resumed its march toward a new record peak, scaling $1,900 for the first time since August and September 2011, when spot prices only traded above that level on four days. The rally has been driven by fears of an economic hit from the pandemic.

Spot gold prices rose $14.6746 to $1,901.54 an ounce, about $20 from an all-time peak in 2011.

US gold futures settled up 0.4% at $1,897.50.

Analysts at RBC Capital Markets noted gold-backed exchange traded product holdings had already reached record peaks.

"The level of Covid-19 uncertainty, low and negative real and nominal rates, politics and geopolitics have driven gold prices sharply higher, and pushed allocations among investors ever higher," they said in a note.

The US-China row put copper - a prime Chinese import - on track for its first weekly loss since mid-May, but analysts expect recovering demand and low stocks to keep prices high.

Silver, meanwhile, was en route to its best week since 1987, up almost 18% in five days.

Oil prices edged higher, supported by a weaker dollar. But US-China tensions and wider economic uncertainty weighed.

Brent crude futures settled up 3 cents at $43.34 a barrel. US crude futures rose 22 cents to settle at $41.29 a barrel.

The euro advanced 0.44% to $1.1645, strengthened by the European Union's approval on Monday of a 750 billion-euro ($857 billion) recovery fund to revive the region's economies.

The Japanese yen strengthened 0.87% versus the greenback at 105.96 per dollar, while the dollar index fell 0.43%, almost a two-year low.

The 10-year US Treasury note rose 0.4 basis points to 0.5856%.