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European stocks slump to two-year low after China executive arrest

Stock MarketsDec 06, 2018 07:12AM ET
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© Reuters. The German share price index DAX graph at the stock exchange in Frankfurt

By Marc Jones

LONDON (Reuters) - Global stock markets slumped for a third day running on Thursday as the arrest of a top executive of Chinese tech giant Huawei in Canada for extradition to the United States fed fears of fresh tensions between the two economic superpowers.

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

Asian markets took a beating. Huawei is not listed but China's second-largest telecom equipment maker ZTE Corp (HK:0763) sank 9 percent in Hong Kong while most of the nearby national bourses lost at least 2 percent.

Europe slumped too in early trading as 3 percent falls for the tech sector, miners and also carmakers kicked London, Frankfurt and Paris to two-year lows.

"We had this very ugly new turn and just the degree to which the market has reacted just suggests to me that they are vulnerable right now," said Saxo Bank's head of FX strategy John Hardy.

"It think we should all be very careful, it is not looking good, especially if the S&P 500 goes to new lows."

Hardy said that U.S. President Donald Trump may try to send some reassuring tweets later. For the time being though S&P 500 futures were down almost 2 percent.

The losses might have been even steeper had CME Group's Chicago Mercantile Exchange not implemented a series of 10-second trading halts in Asia that had limited the initial drop.

Japan's Nikkei shed 1.9 percent, closing at its lowest level since Oct. 30, with semi-conductor 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 while Chinese bluechips lost 2.1 percent to take their 2018 slump to 20 percent.

GROGGY AUSSIE

Saxo Bank's Hardy highlighted that the Australian dollar, which is highly sensitive to trade tensions due to huge Aussie metals sales to China, had failed to lift after some reassuring comments from Beijing on the trade discussions.

It shed 0.6 percent against the U.S. dollar to $0.7229. The greenback itself fell as much 0.4 percent against the yen to 112.77 yen as it suffered slightly too.

The yuan eased 0.3 percent to 6.8835 per dollar in offshore trade, the euro barely budged at $1.1338 and the Canadian dollar languished near the 18-month low it had hit the previous day after cautious noises from the Bank of Canada.

On the Huawei drama, Canadian authorities had said they had arrested the firm's CFO in Vancouver.

China's foreign ministry said neither Canada and the United States had clarified their reason for the move but a source had earlier told Reuters it was related to violations of U.S. sanctions on Iran.

The arrest heightened the sense of a major collision between the world's two largest economic powers not just over tariffs but also over technological hegemony.

Britain's BT Group (LON:BT) said it was removing Huawei's equipment from the core of its existing 3G and 4G mobile operations. Australia and New Zealand have also rejected Huawei's products.

"The U.S. has been telling its allies not to use Huawei products for security reasons and is likely to continue to put pressure on its allies," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities.

"So while there was a brief moment of optimism after the weekend U.S.-China talks but the reality is, it won't be that easy," he said.

OPEC

Traders were also waiting to hear from Vienna about what kind of cuts OPEC and other oil producers like Russia could make to their output.

Consensus among analysts is for somewhere between 1-1.3 million barrels per day, and Brent dived back below $60 a barrel as Saudi Arabia's energy minister said going into the day long meeting that 1 million "would be enough"

Yields on top-rated German government bonds held near six-month lows in risk off environment, while those on benchmark 10-year U.S. Treasuries were near a three-month low at 2.886 percent.

Adding to worries about U.S. recession risks, the Treasury yield curve remained inverted between two- and five-year zones, with five-year notes yielding 2.763 percent, below 2.778 percent on two-year notes.

U.S. jobs data is due on Friday. If the figures show any sign of serious weakness, markets are likely to react HSBC's head of macro economic strategy, Shuji Shirota, said.

European stocks slump to two-year low after China executive arrest
 

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Marty Mcflyaway
Marty Mcflyaway Dec 06, 2018 9:51AM ET
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was thinking the same, he just needs to open his mouth and the markets tumble...
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Andrew Van Sicklen
Andrew Van Sicklen Dec 06, 2018 2:05AM ET
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qe caused the appreciation and its unwinding will cause the depreciation...nothing to do with trump despite his push to slow the fed. Banning us products would be the contemporary equivalent of book burning.
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Gary Doonan
Nanood Dec 06, 2018 1:15AM ET
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Blame Canada!
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Commodity Srinivas
Commodity Srinivas Dec 06, 2018 12:07AM ET
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this is very bad situation for stock markets in the world. situation will cool down when all the countries unitedly ban american products and america. this is very bad. president trump tweet costing so many billion dollard for investors and traders
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Commodity Srinivas
Commodity Srinivas Dec 06, 2018 12:07AM ET
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Andrew Van Sicklen Sir what i mean is every day he speaks about tarrifs. Already 2 days back at G20 he says issue with china is over. And again the next he said another. That sends wrong message. 2 days back Dowjones is 26000 now 25000
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Holly Sorensen
Holly Sorensen Dec 06, 2018 12:03AM ET
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thas what happens when we have China CEO arrested...trump dont want a trade deal. he 2ants to crash markets in time for Dems in the house...then he is gonna blame it on the Dem win.
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