US stocks tumbled at the open on Wall Street on Thursday, after the arrest in Canada of a top executive at Chinese telecoms group Huawei fanned concern over the ability of Washington and Beijing to make their trade truce permanent.
An almost 2 per cent drop in the S&P 500 saw the benchmark index erase its gains for the year, as the Nasdaq weakened 2.2 per cent and the Dow Jones Industrial Average also fell.
The main US stock market indices, which suffered sharp declines on Tuesday before shutting on Wednesday for a day of mourning for former president George HW Bush, joined the global equity weakness on Thursday that was amplified by a tumbling oil price.
Declines across European bourses had accelerated earlier after Saudi Arabia’s energy minister Khalid al-Falih indicated that Opec producers meeting in Vienna were working towards a deal to cut output that could fall short of traders’ expectations.
That sent Brent crude, the international benchmark, tumbling more than 4 per cent, hitting shares of oil companies such as BP and pinning European and UK equities at their lowest level in two years. Chinese equities dropped, with the benchmark CSI closing down 2.2 per cent following the arrest in Vancouver of Meng Wanzhou, Huawei’s chief financial officer and the daughter of its founder, after an extradition request from the US.
The high-profile detention comes as doubts were already growing over whether the ceasefire in tariffs that presidents Donald Trump of the US and Xi Jinping of China agreed at the G20 summit in Argentina will lead to a deal that repairs relations between the world’s two largest economies.
“While China may stomach fines, investigations and market restrictions against its national champion, we do not believe it will tolerate the arrest of a CFO,” said Laban Yu, equities strategist at investment bank Jefferies. If the US did not change course, “trade negotiations are in serious jeopardy”.
Western governments have stepped up pressure on Huawei, whose founder and chief executive, Ren Zhengfei, is a former People’s Liberation Army officer. The company, which has been the focus of concern over corporate espionage and cyber security, has denied having connections to China’s security services or the military.
Deepening anxiety over trade comes at a difficult juncture for investors, with most big asset classes in negative territory and a sharp rally in US government bonds over the past month sending an early warning signal about a slowdown in the US economy next year.
The yield on the benchmark 10-year Treasury, which moves in the opposite direction to the bond’s price, was down 3 basis points at 2.88 per cent, extending its steep decline over the past month. European government bonds also rallied.
The Hang Seng China Enterprises index of large-cap Chinese companies listed in Hong Kong dropped 2.6 per cent. Shares of ZTE, a rival Chinese telecoms equipment maker, tumbled more than 5.7 per cent.
In Europe, Germany’s Dax dropped 2.5 per cent and the FTSE 100, London’s benchmark of blue-chip stocks, dropped by a similar amount.
S&P 500 futures were briefly paused when the market opened late on Wednesday, Bloomberg reported, citing the CME. The S&P 500 shed 3.2 per cent in a turbulent trading day on Tuesday.
Rising concern over trade also ricocheted into the foreign exchange market, hitting China’s currency. The renminbi, traded within China’s domestic markets, was recently down 0.5 per cent at Rmb6.8869 against the US dollar, weakening from this week’s highs of Rmb6.8308. It had earlier this week posted its biggest two-day rally in more than a decade.
US media reported the extradition request on Ms Meng was related to Iran sanctions, but the US justice department declined to comment.
Following the arrest, “investors immediately priced in a deterioration in trade relations”, said Paul Flood, portfolio manager of the Newton Multi-Asset Income Fund.