Shares dive on arrest of China exec; oil sinks as output decision delayed

Dollar under pressure as US yields fall

NEW YORK, Dec 6, (Agencies): Stock markets around world tumbled on Thursday as the arrest of a top Chinese technology executive cast further shadows on USChina trade relations, while oil prices sank on fears of smaller-than-expected output cuts.

The arrest of smartphone maker Huawei Technologies Co’s Chief Financial Officer Meng Wanzhouof in Canada for extradition to the United States came as Washington and Beijing prepared for key talks aimed at resolving a bitter trade spat.

The Dow Jones Industrial Average fell 679.46 points, or 2.71 percent, to 24,347.61, the S&P 500 lost 67.8 points, or 2.51 percent, to 2,632.26 and the Nasdaq Composite dropped 139.83 points, or 1.95 percent, to 7,018.60.

MSCI’s gauge of stocks across the globe shed 2.53 percent, while the panEuropean STOXX 600 index lost 3.31 percent.

Emerging market stocks lost 2.76 percent. MSCI’s broadest index of AsiaPacific shares outside Japan closed 2.28 percent lower, while Japan’s Nikkei lost 1.91 percent.

The US dollar weakened against major peers as Treasury yields slipped and traders scaled back rate hike expectations.

The euro was 0.39 percent higher against the dollar at $1.1388.

Also pulling down equity markets were oil prices.

Oil fell more than 4 percent in choppy trading after OPEC ended a key meeting having made no decision on crude output, as it prepared to debate the matter with other exporters the next day.

An OPEC delegate said the organisation had agreed a tentative deal to cut oil output but had not yet come up with a final figure.

US crude sank 4.65 percent to $50.43 per barrel and Brent was last at $58.86, down 4.39 percent on the day.

The two have lost 30 percent in value this quarter alone, but this week’s OPEC meeting could bring more surprises.

US

The S&P 500 and the Dow Jones Industrial Average slipped back into losses for the year on Thursday as US stocks slid on mounting worries of slowing global growth after a fresh twist in China-US tensions as well as falling oil prices and US bond yields.

The Dow sank more than 3 percent, or over 750 points, while the S&P and the Nasdaq shed roughly 2.5 percent, adding to a more than 3 percent tumble for the three indexes on Tuesday.

The drop continued Thursday – the US market was closed on Wednesday – as bond yields and oil prices both slid.

Benchmark 10-year Treasury yield held at three-month lows as traders scaled back bets on the number of rate hikes after data showed the US trade deficit hit a 10-year high in October and that the pace of job growth was moderating.

All the 11 major S&P sectors were in the red. Technology fell 2.28, energy retreated 3.43 percent, while the tradesensitive industrials fell 2.85 percent.

But the biggest drag on the markets was a 3.53 percent-slump in financials as bond yields fell and bets of a rate hike were pushed lower.

At 11:27 am ET, the Dow was down 776.45 points, or 3.10 percent, at 24,250.62, the S&P 500 was down 77.81 points, or 2.88 percent, at 2,622.25 and the Nasdaq Composite was down 172.30 points, or 2.41 percent, at 6,986.12.

The CBOE Volatility Index, the most widely followed barometer of expected near-term volatility for the S&P, jumped to its highest since Oct 30.

Apple Inc fell 3.1 percent and was the biggest drag on the S&P and the Nasdaq, while trade bellwether Boeing Co’s 6.6 percent decline weighed the most on the Dow.

Declining issues outnumbered advancers for a 5.70-to-1 ratio on the NYSE and a 3.34-to-1 ratio on the Nasdaq.

The S&P recorded two new 52-week highs and 68 new lows. The Nasdaq showed seven new highs and 311 new lows.

UK

UK shares plunged on Thursday, with domestically-focused stocks poised for their worst day since June 2016 when Britain voted to leave the European Union, as investors grew more nervous ahead of a crucial government vote on Brexit next week.

Broad-based selling swept European bourses after the arrest of a top Huawei executive renewed worries about USChina trade tensions.

The midcap FTSE 250 was down 2.6 percent at its weakest since Dec 22, 2016 at 1048 GMT and set for its worst day since June 2016 as investors bailed out of the domestically focused stocks amid growing worries over Brexit.

The FTSE 100 was also down 2.6 percent after hitting its lowest since Dec 5, 2016, and was set for its biggest oneday fall since February. The blue-chip index was underperforming its European peers due to its exposure to heavyweight oil and mining stocks.

Among other decliners, bookies stocks were hit by a report that gambling companies have agreed to stop advertising during live sport broadcasts, such as football matches, amid growing pressure from politicians.

GVC Holdings dropped 4 percent, and Paddy Power Betfair slumped 3.1 percent.

On the midcap index, Indivior topped the fallers, down 11.8 percent, as investors moved out of the drugmaker ahead of its demotion to the small cap index later this month.

The stock has also been hit hard by a US court ruling late last month that allowed a rival to sell a copycat version of its blockbuster Suboxone drug.

The buying that sent Thomas Cook Group shares up 45 percent on Wednesday ran out of steam as worries about the travel operator’s almost 400 million pounds of debts following its profit warning returned. Shares were down 11.5 percent.

Elsewhere, broker recommendations were the main drivers. Genus rallied to its highest in more than two months after Kepler Cheuvreux upgraded the stock to buy, while Dialight dropped 8 percent to the bottom of the small-cap index after Peel Hunt cut its price target.

Asia

Asian markets took a beating. Huawei is not listed, but China’s second-largest telecom equipment maker, ZTE Corp, sank 9 percent in Hong Kong while most of the nearby national bourses lost at least 2 percent.

Japan’s Nikkei had shed 1.9 percent, closing at its lowest level since Oct 30, with semiconductor-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 2.0 percent too. Hong Kong’s Hang Seng dropped 2.5 percent and Chinese blue chips fell 2.1 percent to take their 2018 loss to 20 percent.

The Australian dollar, which is highly sensitive to US-China tensions due to huge Aussie metals sales to China, shed 1 percent despite China’s commerce ministry saying it was “very confident” about striking a US trade deal.

It was last at $0.72 to the US dollar while the greenback itself fell as much 0.4 percent against the yen to 112.77 yen as it suffered slightly too.

Oil

Oil fell in choppy trading on Thursday after OPEC ended a key meeting having made no decision on crude output, as it prepared to debate the matter with other exporters the next day.

The Organisation of the Petroleum Exporting Countries (OPEC) met in Vienna to decide its production policy in coordination with non-OPEC producers including Russia, Oman and Kazakhstan.

An OPEC delegate said the organisation had agreed a tentative deal to cut oil output but had not yet come up with a final figure.

Saudi Energy Minister Khalid al-Falih said earlier that OPEC needed Russia to come on board with any cuts. He said a final decision by OPEC and its allies was likely by Friday evening.

Expectations had been for a joint cut of between 1 and 1.4 million barrels per day (bpd). Falih said before the meeting that the “OPEC+” group would be happy with a cut of just 1 million bpd.

Brent crude futures were down $2.07 on the day to $59.49 a barrel by 1532 GMT, having hit a session low of $58.36, while US futures fell $1.38 to $51.51 a barrel.

The two have lost 30 percent in value this quarter alone.

Led by Saudi Arabia, OPEC’s crude oil production has risen by 4.1 percent since mid-2018, to 33.31 million bpd.

“(OPEC) know how to handle markets. They might be talking it down and then delivering a sucker-punch a bit later, that could also be the outcome,” Saxo Bank senior manager Ole Hansen said.

European equities hit their lowest in two years and commodity-sensitive currencies such as the Russian rouble fell sharply, in part because of the slide in the oil price, but also with the arrest of a top executive of Chinese tech giant Huawei in Canada for extradition to the United States

The arrest of Huawei’s chief financial officer Meng Wanzhouof, who is also the daughter of the firm’s founder, triggered renewed fireworks just as Washington and Beijing prepare for crucial trade negotiations.

Barclays said in its Global Outlook published on Thursday that “investors need to lower their expectations” and that “2019 should be a period of lower returns and higher volatility”.

Barclays said it expected “the global economy to slow over the next several quarters” although it added that “not one major economy is near recession.”

Currencies

The dollar weakened against major peers on Thursday as US Treasury yields tumbled and traders scaled back expectations on the number of rate hikes the Federal Reserve would implement amid weakening economic data and heightened market volatility.

The benchmark 10-year Treasury yield hit a three-month trough of 2.845 percent. It was last down 7 basis points at 2.851 percent.

The euro was 0.33 percent higher against the dollar at $1.1382.

Data on Thursday also weighed on the greenback. The US trade deficit jumped to a 10-year high in October as soybean exports dropped further and imports of consumer goods rose to a record high, suggesting the Trump administration’s tariff-related measures to shrink the trade gap likely have been ineffective.

“The widening in the trade deficit to $55.5 billion in October, from $54.6 billion, was mainly driven by a further plunge in exports to China, and suggests that net trade will once again be a drag on GDP growth in the fourth quarter,” Andrew Hunter, a US economist at Capital Economics, wrote in a note.

The dollar fell 0.8 percent against the Japanese yen after news of the arrest in Canada of a top executive of Chinese tech giant Huawei prompted fears of a flare-up in US-China trade tensions.

The yen tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.

Sterling was 0.43 percent higher on the day even as worry over how a British Parliament vote on Prime Minister Theresa May’s Brexit deal next week remained in focus.

The Canadian dollar fell against its US counterpart to a nearly 18-month low, as Bank of Canada Governor Stephen Poloz said the economy was weaker than forecast and predicted low oil prices would cut growth.