Futures hit by U.S.-China tension; airlines tumble as Berkshire pulls away

(Reuters) – U.S. stock index futures retreated on Monday after a fresh spat between Washington and Beijing over the origin of the novel coronavirus, while airlines slumped as Berkshire Hathaway dumped its holdings in the sector.

Delta Air Lines (DAL.N), American Airlines Co (AAL.O), Southwest Airlines Co (LUV.N) and United Airlines (UAL.O) fell between 8% and 11% in premarket trading, adding to their woes as air travel remains restricted due to the COVID-19 pandemic.

Warren Buffett-backed Berkshire’s (BRKa.N) move also shaved more than 5% off planemaker Boeing Co’s (BA.N) shares.

Berkshire Hathaway itself posted a record quarterly net loss of nearly $50 billion and said its performance was suffering in several major operating businesses. Its shares fell 1.4%.

Over the weekend, U.S. Secretary of State Mike Pompeo said there was “a significant amount of evidence” that the coronavirus emerged from a Chinese laboratory, but did not dispute U.S. intelligence agencies’ conclusion that it was not man-made. An editorial in China’s Global Times said Pompeo was “bluffing”.

Pompeo’s statement comes after Wall Street started May on a grim note as President Donald Trump revived a threat of new tariffs against China in response to the COVID-19 pandemic.

“When you think how nervous markets got about the U.S.-China trade war then if this theme continues you can’t help thinking that the end game is far worse than it would be from a simple trade war,” said Jim Reid, a strategist at Deutsche Bank.

The S&P 500 index’s .SPX 29% recovery from its March lows stands to be tested as investors weigh renewed U.S.-China tensions and the economic damage of the health crisis.

At 7:28 a.m. ET, Dow e-minis 1YMcv1 were down 267 points, or 1.13%. S&P 500 e-minis EScv1 were down 24 points, or 0.85% and Nasdaq 100 e-minis NQcv1 were down 74 points, or 0.85%.

Investors are also awaiting factory orders data for March, which is expected to show a sharp decline.

With more than half of the S&P 500 companies having reported earnings so far, analysts now see first-quarter S&P 500 earnings falling 12.7% from a year ago, and an even sharper 37.8% decline for the second quarter.

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