Uncertainty plagues global markets
After a reprieve for a national day of mourning, U.S. stock markets on Thursday extended a slide triggered by signs that the prospect of a U.S.-China trade deal was in jeopardy, though stocks did recover somewhat later in the day.
Investor angst was fueled by the arrest of a Chinese executive that further threatened progress on trade, coupled with omens of a recession in the bond market and a steep drop in oil prices.
The Organization of Petroleum Exporting Countries began a crucial meeting Thursday in Vienna in hopes of agreeing on a production cut of 1 million barrel per day.
Oil prices are down 30 percent in the fourth quarter on overproduction across world producers.
Prices slipped further Thursday on fears that Saudi Arabia will not cut production enough to stabilize prices. Anything short of 1 million barrels per day would likely be disappointing for producers.
The OPEC meeting Thursday apparently ended with no agreement and debate expected to continue Friday, when Russia is supposed to attend.
Mixed signals about the status of the trade deal between the U.S. and China following the Group of 20 Summit in Buenos Aires had triggered Wall Street clamor earlier in the week. President Donald Trump and the Chinese Commerce ministry touted their successful negotiations, but details on the exact deal that was struck have been difficult to establish.
By Thursday, news had emerged that chief financial officer of Chinese tech juggernaut Huawei, Meng Wanzhou, was arrested in Canada and now faces extradition to the United States. Meng’s arrest bodes poorly for the already fragile detente between the U.S. and China ahead of another 90 days of trade negotiations.
The news sowed further fears in Asian markets Thursday. Hong Kong’s Hang Seng index sank 2.7 percent and The Shanghai Composite index fell 1.7 percent and Japan’s benchmark Nikkei tumbled 2.3 percent.
The jitters spread to European markets, with Britain’s FTSE 100 Index falling more than 2.5 percent and Germany’s DAX index faring even worse, down more than 2.8 percent. In France, the CAC fell nearly 2.8 percent.
Investors were also spooked by something that hasn’t happened in a decade: the inversion of the yield curve. Typically, the interest rate on 5- and 10-year U.S. government bonds are higher than the interest rates paid for bonds of 3 years or less. Investors who are loaning the U.S. government money for a long time tend to want a higher interest rate for taking on that extra risk. But on Monday — and again briefly Thursday morning — the 3-year bond was yielding more than the 5-year bond, an unusual event that Wall Street is viewing with concern.
Inverted yield curves usually mean a recession is coming, although not immediately.
“Although an inverted yield curve is a good indicator of trouble, it has never been a good sign of immediate trouble,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “There has typically been a delay of two years or more between the initial inversion and the actual recession.”