Pro-democracy protesters took to the streets of Hong Kong after China submitted proposals for new Hong Kong security legislation for the city, as markets are hammered by fears of a fresh wave of violent demonstrations

London (AFP) - Wall Street opened lower after heavy losses for Hong Kong where China pushed for a national security law that has fanned geopolitical tensions and somewhat overshadowed optimism about easing coronavirus lockdowns in Europe and the United States.

After months of concentrating on the economic impact of the coronavirus, traders’ attention is once again also on China-US tensions, already exacerbated by US President Donald Trump’s constant criticism of Beijing’s handling of the pandemic.

On the first day of its rubber-stamp parliament, China unveiled proposals to strengthen “enforcement mechanisms” in Hong Kong, after the city was last year rocked by seven months of massive – and sometimes violent – pro-democracy protests.

There was criticism from Washington regarding the latest move, with the State Department saying it would be “highly destabilising, and would be met with strong condemnation from the United States and the international community”.

Hong Kong’s main stocks index closed down more than five percent, with financials and property firms battered as investors fretted about the city’s economic future.

“Riots in the street and plummeting real estate markets might be the least of Hong Kong’s building wall of worry as this authoritarian national security plan will most certainly bring into question (the city’s) status as a global banking centre,” said Stephen Innes of AxiCorp.

US lawmakers have already passed legislation that would strip the city’s preferential trading status in the United States if it no longer enjoys autonomy from the mainland.

“The very real threat now is the return of mass protests to the streets of Hong Kong, a downgrade in trade status with the US and potentially an exit of large companies,” said Oanda analyst Jeffrey Halley.

After Chinese officials refrained from offering a 2020 growth target in light of the coronavirus, Wall Street sagged with the Dow Jones Industrial Average off 0.4 percent five minutes into the session.

The broad-based S&P 500 and the tech-heavy Nasdaq shed 0.3 percent.

London suffered modest losses mid-session while Frankfurt and Paris were just in positive territory two hours from the close.

The pound held up following official data, which as expected, showed a record drop in UK retail sales and unprecedented surge in government borrowing to £62 billion ($75.5 billion/69 billion euros) during April, the country’s only full-month of total lockdown.

Britain’s fiscal watchdog, the Office for Budget Responsibility, warned that was just an “initial taste” of the pandemic damage.

HSBC Global Research highlighted the “massive fiscal cost from COVID-19” while noting that the latest fiscal numbers are “eye-watering.”

Concerns about China-US tensions have taken away from news that more countries were edging out of virus lockdowns after new deaths and infections eased and observers said the worst of the pain for the global economy may have passed.

Still, the US reported another 2.43 million workers applied for unemployment benefits last week, bringing the total of newly jobless since the shutdowns began in mid-March to 38.6 million.

The fresh uncertainty also weighed on oil prices but WTI and Brent crude pared down initial losses of around 5 percent and main contracts remained above $30 per barrel thanks to a huge cut in output by key producers and on hopes for increased demand as lockdowns are lifted.

- Key figures around 1400 GMT -

New York - Dow: DOWN 0.4 percent at 24,375.39

London - FTSE 100: DOWN 0.8 percent at 5,971.98 points

Frankfurt - DAX 30: UP 0.1 percent at 11,080.02

Paris - CAC 40: UP 0.2 percent at 4,454.90

EURO STOXX 50: DOWN 0.1 percent at 2,903.96

Tokyo - Nikkei 225: DOWN 0.8 percent at 20,388.16 (close)

Hong Kong - Hang Seng: DOWN 5.6 percent at 22,930.14 (close)

Shanghai - Composite: DOWN 1.9 percent at 2,813.77 (close)

West Texas Intermediate: DOWN 0.2 percent at $32.71 per barrel

Brent North Sea crude: DOWN 0.2 percent at $33.61 per barrel

Euro/dollar: DOWN at $1.0896 from $1.0949 at 2100 GMT

Dollar/yen: DOWN at 107.58 yen from 107.60 yen

Pound/dollar: DOWN at $1.2176 from $1.2223

Euro/pound: DOWN at 89.45 pence from 89.57 pence