Asian markets and US futures plummeted overnight as news broke that Huawei's (SZ:002502) CFO had been arrested in Canada to be extradited back to the US. The CFO, Wanzhou Meng, was arrested for allegedly breaching Iran sanctions. China criticized the US and Canada for the arrest, demanding her immediate release. Traders have quickly moved out of riskier assets reflecting nerves that the arrest is likely to escalate tensions between the US and China once again.
The timing of the arrest is key here. Markets are already incredibly nervous over slowing economic growth thanks to the inverted US yield curve. Relations between the US and China were supposed to be on the mend after a productive G20. However, the arrest has the potential to shatter very fragile US-Sino relations which will weigh further on global trade and growth concerns. It looks as though, despite recent heavy sell-offs, the bottom is not in sight and the markets have further to fall. The big swings of late are representative of a very jittery market.
OPEC cutting into Trump’s wishes
Oil moved lower in early trade, extending losses from the previous session as investors look towards the OPEC meeting. This is the most highly anticipated OPEC meeting for a while and has the potential to be a highly politicized get together.
OPEC, or more specifically Saudi Arabia and Russia, are widely expected to cut production, however the market is not convinced that the cuts will be deep enough. With concerns that Trump could be running the show behind the scenes following his support for Saudi Arabia in the face of Khashoggi’s murder and Trump’s well-known desire for low oil prices, Saudi Arabia is caught between a rock and a hard place. Not ideal, particularly given the rising concerns over lagging demand from slowing global growth. OPEC will need to pull extra cuts out of the bag if the oil bulls are to take control once again. WTI has a strong support at $50, which it could be retesting before the weekend.
Brexit uncertainty rules
Sterling was trading lower versus its peers on Thursday morning. The uncertainty of how Brexit will play out is leaving only the very bold left holding the pound. Developments continue to be fast paced with the pound trading the swings in sentiment. As Theresa May desperately offers concessions to try to get the deal through Parliament, no one is able to predict with any degree of certainty what comes next. Whilst the chances of a no deal Brexit have slimmed down thanks to intervention from parliament, the pound is looking far from elated.