Mar­kets tum­ble as Huawei ar­rest rekin­dles US-China trade fears

Financial Chronicle - - FRONT PAGE - ROLAND JACK­SON

WORLD mar­kets slumped on Thurs­day as the ar­rest of a top ex­ec­u­tive at Chi­nese tele­com gi­ant Huawei raised doubts over the re­cent trade truce agreed by US pres­i­dent Don­ald Trump and his Chi­nese coun­ter­part Xi Jin­ping.

Fears over the po­ten­tial trade fall­out saw the Frank­furt DAX in­dex, Lon­don and Paris all shed 3 per cent. The Wall Street too joined the global stocks sell-off. Losses on Wall Street deep­ened in late morn­ing trade on Thurs­day. Near 16.30 GMT, the Dow Jones In­dus­trial Av­er­age was down 2.3 per cent at 24,446.09. The broad­based S&P slid 2 per cent to 2,645.74, while the tech-heavy Nas­daq Com­pos­ite In­dex shed 2.4 per cent to 6,998.19. Lon­don stocks tum­bled more than 3 per cent. At 16.00 GMT, the FTSE 100 shares in­dex sank 3.12 per cent to 6,705.66 points com­pared to Wed­nes­day’s clos­ing level, mir­ror­ing losses in Frank­furt and Paris.

.... I am a Tar­iff Man. When peo­ple or coun­tries come in to raid the great wealth of our Na­tion, I want them to pay for the priv­i­lege of do­ing so. It will al­ways be the best way to max out our eco­nomic power. We are right now tak­ing in $bil­lions in Tar­iffs. MAKE AMER­ICA RICH AGAIN — Don­ald Trump Tweet that had trig­gered mass stock sell-off

AGLOBAL mar­ket rout trig­gered a sell-off in the do­mes­tic eq­uity mar­kets that weak­ened the ru­pee on Thurs­day, which slipped to the 71-mark after six ses­sions. But smaller-than-ex­pected oil pro­duc­tion cut pro­posed by Saudi Ara­bia after the Or­gan­i­sa­tion of the Pe­tro­leum Ex­port­ing Coun­tries (Opec) meet­ing led to sharp cor­rec­tion in Brent prices and helped the ru­pee to re­cover.

After open­ing lower at 70.82, the ru­pee plunged to the day’s low at 71.14 but re­cov­ered to fi­nally set­tle for the day at 70.90 down 44 paise over its pre­vi­ous clos­ing price of 70.46 against the dol­lar.

In­vestor sen­ti­ment took a hit after Cana­dian au­thor­i­ties ar­rested a top ex­ec­u­tive of Chi­nese tech gi­ant Huawei Tech­nolo­gies for sus­pected Iran sanc­tions vi­o­la­tions, fan­ning fears of fur­ther ten­sions be­tween China and the US. This led to both the dol­lar and the yen ris­ing on safe­haven buy­ing.

Mad­havi Arora, econ­o­mist at Edel­weiss Se­cu­ri­ties said, “The ru­pee saw a volatile ses­sion on Thurs­day. While it opened weaker against the dol­lar in line with other Asian forex amid weaker global growth con­cerns, and con­flict­ing sig­nals on the US-China trade deal. Be­sides, pres­sure on Asian forex, led by Chi­nese yuan ren­minbi, in­creased as mar­kets were ner­vous that the US and China ten­sion may am­plify after the ar­rest of a top ex­ec­u­tive at Chi­nese tech gi­ant Huawei.”

“How­ever, smaller-than-ex­pected oil pro­duc­tion cut pro­posed by Saudi after the Opec meet­ing led to sharp cor­rec­tion in Brent and helped in re­cov­ery in the ru­pee. The ru­pee neart­erm dy­nam­ics would be con­tin­gent on Brent’s di­rec­tion after the out­come of Opec and five states elec­tions out­come as the US-China trade truce op­ti­mism starts to fade and the Fed re­it­er­ates data-de­pen­dency ahead in the De­cem­ber pol­icy,” added Arora.

The Opec is meet­ing in Vi­enna to de­cide its pro­duc­tion pol­icy in co­or­di­na­tion with non-OPEC pro­duce

ers in­clud­ing Rus­sia, Oman and Kaza­khstan.

Ex­pec­ta­tions had been of a joint cut of 1- 1.4 mil­lion bar­rels per day (bpd), un­til Saudi en­ergy min­is­ter Khalid al-Falih said be­fore the meet­ing that the “Opec+” group would be happy with a cut of just 1 mil­lion bpd.

The Opec and its al­lies are work­ing to­wards cut­ting oil out­put but could fail to reach a deal if no com­pro­mise is found with its friend Rus­sia, Falih said.

Oil prices snapped lower after Falih’s com­ments. Brent oil fu­tures fell 3 per cent to be­low $60 per bar­rel on fears that there could be no deal.

Mean­while, rat­ing agency Fitch said it ex­pects the ru­pee to weaken to 75 against the dol­lar by the mid­dle of next year due to a wi­den­ing cur­rent ac­count deficit and tighter global fi­nanc­ing con­di­tions. De­spite a few re­cent ad­vances, the ru­pee is on track for its worst yearly per­for­mance in five years in 2018. Fitch has low­ered In­dia’s GDP growth fore­cast to 7.2 per cent in 2018-19, fol­lowed by 7 per cent in 2019-20 and 7.1 per cent in 2020-21. Bench­mark eq­uity in­dices cracked for the third con­sec­u­tive ses­sion on nega­tive global cues.

Fitch is ex­pect­ing the ru­pee to weaken to 75 against the dol­lar by the mid­dle of next year

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