World markets slumped yesterday as the arrest of a top executive at Chinese telecoms giant Huawei raised doubts over the recent trade truce agreed by US President Donald Trump and Chinese counterpart Xi Jinping.
Fears over the potential trade fallout saw the Frankfurt DAX index, London and Paris all shed 3% and Wall Street joined the global stocks sell-off, opening sharply lower as the Dow Jones Industrial Average slid 2.0%.
The broad-based S&P 500 sank 1.9% to 2,648.04, while the tech-rich Nasdaq Composite Index shed 2.2% to 7,002.02 as Wall street returned to action.
“After some semblance of tranquility on Wednesday, markets are in the thick of it as news regarding Chinese smartphone Company Huawei suggest that US-China tensions are well beyond the tit for tat tariff war,” said Oanda’s Stephen Innes.
The markets tanked after the arrest of Huawei executive Meng Wanzhou in Canada for extradition to the US in an investigation into suspected Iran sanctions violations by the company.
On the foreign exchange markets, the pound held up despite Britain lurching toward a potential no-deal Brexit.
Prime Minister Theresa May faces defeat in her bid to push a controversial agreement with the EU through parliament.
Trump and Xi had sparked a brief global markets rally on Monday after appearing to clinch a tariffs ceasefire last weekend in Buenos Aires.
But the rally ran out of steam with investors fretting over the fragile state of the world economy and Brexit uncertainty.
“Stocks have sold-off severely...as traders are worried that US-China relations have deteriorated,” said CMC Markets analyst David Madden. “The arrest of Huawei CFO Meng Wanzhou in Canada over the weekend has rattled investor confidence.
“US-China relations were on the mend after the G20 summit...and now the arrest might have thrown a spanner in the works.”
Meng is the daughter of company founder Ren Zhengfei, a former Chinese People’s Liberation Army engineer.
The company has been investigated by US intelligence, who deemed it a national security threat, and such concerns have been voiced elsewhere too.
China has expressed outrage, urging Canada and the US to “immediately correct the wrongdoing”.
“This week has been wild and there’s still a way to go before it is over,” said Spreadex analyst Connor Campbell.
Investors are concerned that the Huawei news “will do irrevocable damage to the fragile trade truce”, he added.
London-listed mining and energy giants saw their share prices drop on worries about demand from key commodity consumer China.
Brent oil prices meanwhile briefly tumbled below $60 per barrel on trader fears of an insufficient output cut at a Vienna Opec meeting.
“Not only were miners in deep distress over the potential for another nosedive in US-China relations, but BP and Shell plunged 3.0% apiece as Brent crude tumbled back under $60,” Campbell noted.
Opec members and other oil-producing countries are mulling output cuts to prop up plunging prices, defying repeated calls by Trump that they keep the taps open.
“We’re looking for a sufficient cut to balance the market, equally distributed between countries,” Saudi oil minister Khalid al-Falih told reporters in remarks interpreted by some observers as overly cautious.
“Expectations for a supply cut are high given that the price of oil has plummeted by over a third in just a little more than two months,” said XTB analyst David Cheetham. “But the early indications are that the size of the reduction may not be enough to halt the market’s declines.”
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