Markets Tumble as Huawei Arrest Rekindles U.S.-China Trade Fears
World markets slumped Thursday as the arrest of a top executive at Chinese telecoms giant Huawei raised doubts over the recent trade truce agreed by U.S. President Donald Trump and Chinese counterpart Xi Jinping.
Fears over the potential trade fallout saw the Frankfurt DAX index, London and Paris all shed three percent and Wall Street joined the global stocks sell-off, opening sharply lower as the Dow Jones Industrial Average slid 2.0 percent.
The broad-based S&P 500 sank 1.9 percent to 2,648.04, while the tech-rich Nasdaq Composite Index shed 2.2 percent to 7,002.02 as Wall street returned to action. The U.S. markets were closed Monday for the funeral of former president George H.W. Bush.
"After some semblance of tranquility on Wednesday, markets are in the thick of it as news regarding Chinese smartphone Company Huawei suggest that U.S.-China tensions are well beyond the tit for tat tariff war," said Oanda's Stephen Innes.
The markets tanked after the arrest of Huawei executive Meng Wanzhou in Canada for extradition to the U.S. in an investigation into suspected Iran sanctions violations by the company.
On the foreign exchange markets, the pound held up despite Britain lurching toward a potential no-deal Brexit. Prime Minister Theresa May faces defeat in her bid to push a controversial agreement with the EU through parliament.
Trump and Xi had sparked a brief global markets rally on Monday after appearing to clinch a tariffs ceasefire last weekend in Buenos Aires.
But the rally ran out of steam with investors fretting over the fragile state of the world economy and Brexit uncertainty.
- 'Severe' sell-off -
"Stocks have sold-off severely ... as traders are worried that U.S.-China relations have deteriorated," said CMC Markets analyst David Madden.
"The arrest of Huawei CFO Meng Wanzhou in Canada over the weekend has rattled investor confidence.
"U.S.-China relations were on the mend after the G20 summit ... and now the arrest might have thrown a spanner in the works."
Meng is the daughter of company founder Ren Zhengfei, a former Chinese People's Liberation Army engineer. The company has been investigated by U.S. intelligence, who deemed it a national security threat, and such concerns have been voiced elsewhere too.
China has expressed outrage, urging Canada and the US to "immediately correct the wrongdoing".
- 'Wild week' -
"This week has been wild and there’s still a way to go before it is over," said Spreadex analyst Connor Campbell.
Investors are concerned that the Huawei news "will do irrevocable damage to the fragile trade truce", he added.
London-listed mining and energy giants saw their share prices drop on worries about demand from key commodity consumer China.
Brent oil prices meanwhile briefly tumbled below $60 per barrel on trader fears of an insufficient output cut at a Vienna OPEC meeting.
"Not only were miners in deep distress over the potential for another nosedive in U.S.-China relations, but BP and Shell plunged 3.0-percent apiece as Brent crude tumbled back under $60," Campbell noted.
OPEC members and other oil-producing countries are mulling output cuts to prop up plunging prices, defying repeated calls by Trump that they keep the taps open.
"We're looking for a sufficient cut to balance the market, equally distributed between countries," Saudi oil minister Khalid al-Falih told reporters in remarks interpreted by some observers as overly cautious.
"Expectations for a supply cut are high given that the price of oil has plummeted by over a third in just a little more than two months," said XTB analyst David Cheetham.
"But the early indications are that the size of the reduction may not be enough to halt the market's declines."
- Tech sector hammered -
The Huawei news saw tech firms hammered on Asian markets.
Hong Kong-listed ZTE, hit by a U.S. banning order over security fears this year before that was reduced to a massive fine, was almost six percent down.
Market heavyweight Tencent, AAC Technologies and Sunny Optical -- a supplier to Huawei -- each plunged more than five percent.
- Key figures around 1500 GMT -
New York - Dow Jones: DOWN 2.0 percent at 24,532.25 points
London - FTSE 100: DOWN 2.9 percent at 6,723.18
Frankfurt - DAX 30: DOWN 3.0 percent at 10,860.75
Paris - CAC 40: DOWN 3.0 percent at 4,797.34
Milan - FTSE MIB - DOWN 3.0 percent at 18,812.62
EURO STOXX 50: DOWN 2.5 percent at 3,070.14
Tokyo - Nikkei 225: DOWN 1.9 percent at 21,501.62 (close)
Hong Kong - Hang Seng: DOWN 2.5 percent at 26,156.38 (close)
Shanghai - Composite: DOWN 1.7 percent at 2,605.18 (close)
Oil - West Texas Intermediate: DOWN $1.37 at $51.52 per barrel
Oil - Brent Crude: DOWN $1.30 at $60.26
Euro/dollar: DOWN at $1.1343 from $1.1344 at 2200 GMT
Dollar/yen: DOWN at 112.39 yen from 113.19
Pound/dollar: UP at $1.2779 from $1.2734