GLOBAL MARKETS-Asian shares set to sag on U.S.-China woes

NEW YORK, May 27 (Reuters) - Asian shares are likely to dip
on Thursday after remarks by U.S. Secretary of State Mike Pompeo
that Hong Kong no longer warranted special treatment under U.S.
law reignited worries about worsening relations with Beijing.
After posting early losses, E-Mini futures for the S&P 500
ESc1 edged up 0.03%, while Nikkei futures NKc1 pointed to a
loss of 10 points.
Pompeo said overnight that China had undermined Hong Kong's
autonomy so fundamentally that the territory no longer warranted
special treatment, a potentially big blow to the city's status
as a financial hub. Some investors worry a punitive U.S. response to China on
the issue of Hong Kong could result in a tit-for-tat reaction
from Beijing, further straining ties between the world's two
biggest economies and further hobbling global growth.
"All eyes remain on the U.S.-China relationship," said Chris
Weston, the head of research at Pepperstone, a currency broker.
"This is a risk for markets...one questions if the equity
markets are too complacent here."
The S&P 500 .SPX had closed above 3,000 for the first time
in almost 12 weeks, bolstered by bank stocks, as investors hoped
that the world economy can recover as it re-opens. .N
The S&P 500 has leapt about 36% since the global coronavirus
pandemic dragged it to the year's low on March 23, but there are
concerns the rally may be overdone and susceptible to a
protracted pullback given the U.S. economy is mired in its worst
downturn since the Great Depression. Bond investors seemed to agree more circumspection is
needed. Ten-year U.S. yields US10YT=RR dipped to 0.6770% from
0.6802% overnight. Although 10-year yields are up from an
all-time low of 0.4980% struck in March, they are still a
whopping 120 basis points below highs seen in January.
President Donald Trump will now decide how many U.S.
economic privileges Hong Kong should still enjoy. Sources have
said the U.S. government may suspend Hong Kong's preferential
tariff rates for exports to the United States, a far less severe
response than formally revoking Hong Kong's special status under
U.S. law. Trump said he'd announce a response to China's policies
towards Hong Kong later this week.
Oil futures took a beating as investors fretted about
Trump's response to China. U.S. crude oil futures CLc1 fell
more than 1% to $31.45 early Thursday.
Uncertainty over Hong Kong's future dragged the yuan in
offshore trade CNH=D3 to a record low of 7.1966 per dollar. It
recouped some of its losses by early Thursday and was firmer at
7.1792.
The euro EUR= , however, was buoyed by a 750 bullion euro
plan to shore up economies hammered by the coronavirus pandemic.
That pushed the euro to an eight-week high and by early
Thursday, the common currency had nudged up 0.1% to 1.1014,
while the U.S. dollar index USD= was down 0.09% at 98.927.
Gold investors, on the other hand, appeared to shrug off
geopolitical risks and focused instead on optimism around the
re-opening of the world economy, paring their holdings of the
safe-haven metal. Prices extended overnight losses and spot gold
XAU= traded at $1,708.60 per ounce. GOL/