Global shares slide for third consecutive day
Markets slumped as traders digested the arrest of a Huawei executive in Canada for extradition to the US, and its implications for US-China tensions
London — Global stock markets slumped for a third consecutive day on Thursday as the arrest of a top executive of Chinese tech giant Huawei in Canada for extradition to the US fed fears of fresh tensions between the two economic superpowers.
The arrest of Huawei’s CFO Meng Wanzhou, who is also the daughter of the firm’s founder, triggered renewed fireworks coming just as Washington and Beijing prepare for crucial trade negotiations.
Asian markets took a beating. Huawei is not listed but China’s second-largest telecom equipment maker ZTE Corp sank 9% in Hong Kong while most of the nearby national bourses lost at least 2%.
Europe slumped too in early trading as 3% falls for the tech sector, miners and also carmakers kicked London, Frankfurt and Paris to two-year lows
“We had this very ugly new turn and just the degree to which the market has reacted just suggests to me that they are vulnerable right now,” said Saxo Bank head of forex strategy John Hardy.
“I think we should all be very careful, it is not looking good, especially if the S&P 500 goes to new lows.”
Hardy said that US President Donald Trump may try to send some reassuring tweets later. For the time being though S&P 500 futures were down almost 2%.
The losses might have been even steeper had CME Group’s Chicago Mercantile Exchange not implemented a series of 10-second trading halts in Asia that had limited the initial drop.
Japan’s Nikkei shed 1.9%, closing at its lowest level since October 30, with semi-conductor related shares leading the losses. Huawei is one of the world’s largest makers of smartphones and telecommunications network equipment.
MSCI’s ex-Japan Asia-Pacific index lost 2% too. Hong Kong’s Hang Seng dropped 2.5% while Chinese blue chips lost 2.1% to take their 2018 slump to 20%.
Saxo Bank’s Hardy highlighted that the Australian dollar, which is highly sensitive to trade tensions due to huge Aussie metals sales to China, had failed to lift after some reassuring comments from Beijing on the trade discussions.
It shed 0.6% against the US dollar to $0.7229. The greenback itself fell as much 0.4% against the yen to ¥112.77 as it suffered slightly too.
The yuan eased 0.3% to 6.8835 to the dollar in offshore trade, the euro barely budged at $1.1338 and the Canadian dollar languished near the 18-month low it had hit the previous day after cautious noises from the Bank of Canada.
On the Huawei drama, Canadian authorities had said they had arrested the firm’s CFO in Vancouver.
China’s foreign ministry said neither Canada and the US had clarified their reason for the move but a source had earlier told Reuters it was related to violations of US sanctions on Iran.
The arrest heightened the sense of a major collision between the world’s two largest economic powers not just over tariffs but also over technological hegemony.
Britain’s BT Group said it was removing Huawei’s equipment from the core of its existing 3G and 4G mobile operations. Australia and New Zealand have also rejected Huawei’s products.
“The US has been telling its allies not to use Huawei products for security reasons and is likely to continue to put pressure on its allies,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“So while there was a brief moment of optimism after the weekend US-China talks but the reality is, it won’t be that easy,” he said.
Traders were also waiting to hear from Vienna about what kind of cuts Opec and other oil producers like Russia could make to their output.
Consensus among analysts is for somewhere between 1-million and 1.3-million barrels a day, and Brent dived back below $60 a barrel as Saudi Arabia’s energy minister said going into the day-long meeting that 1-million “would be enough”.
Yields on top-rated German government bonds held near six-month lows in risk off environment, while those on benchmark 10-year US treasuries were near a three-month low at 2.886%.
Adding to worries about US recession risks, the treasury yield curve remained inverted between two- and five-year zones, with five-year notes yielding 2.763%, below 2.778% on two-year notes.
US jobs data is due on Friday. If the figures show any sign of serious weakness, markets are likely to react HSBC’s head of macroeconomic strategy, Shuji Shirota, said.