Markets in mainland China and Hong Kong tumbled into the close after Beijing ordered Washington to shut down its consulate in the city of Chengdu. That came days after US authorities forced the Chinese consulate in Houston to cease operations.
The Shanghai Composite Index (SHCOMP) closed down 3.9%, while Hong Kong's Hang Seng (HSI) was last down more than 2%.
Asian markets were already struggling to start the day. Momentum on Wall Street has fizzled out as investors digest what is expected to be one of the worst earnings seasons in history. And the US Department of Labor on Thursday reported an increase in first-time claims for unemployment benefits for the first time in 16 weeks. Adding to the fears: Airline traffic is once again falling, restaurant reservations are slipping and movie theaters remain shut.
European stocks fell sharply in early trading Friday, following the poor showing in Asia and Wall Street's weak close. Germany's DAX (DAX) dropped more than 2%, while France's CAC 40 (CAC40) shed 2%. The FTSE 100 (UKX) in London was off 1.7%.
Wall Street is also preparing for a rough start Friday: Futures for the Dow (INDU), S&P 500 (SPX) and Nasdaq (COMP) all slumped at least 0.8% overnight, with Nasdaq futures falling 1.5%. The tech heavy index was also Thursday's worst performer of the three, finishing down 2.3%.
Tech stocks in Asia were among Friday's biggest losers. Hong Kong-listed shares of Tencent (TCEHY) and Alibaba (BABA) fell 5.8% and 3.6%, respectively. And the Star 50 Index, which tracks tech stocks listed on Shanghai's Nasdaq-like Star Market, plummeted 7%.
Technology stocks might wind up absorbing a significant chunk of the impact, "especially if the White House stops giving US corporates a free pass in their dealings with China," according to Stephen Innes, global chief market strategist at AxiCorp. He added that US tech giants in particular could struggle as US-China tensions escalate.
"Things could turn quite ugly into the weekend as traders will have no option but [to] pare risk," he added.
— Julia Horowitz contributed to this report.
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