U.S. Stocks Fall Sharply on Arrest of Huawei CFO

Date : 07/12/2018 @ 02:25
Source : Dow Jones News

U.S. Stocks Fall Sharply on Arrest of Huawei CFO

By David Hodari, Mike Bird and Jessica Menton 

U.S. stocks fell sharply Thursday, as global markets shuddered over the arrest of a top Chinese tech executive and a fresh plunge in oil prices.

The Dow Jones Industrial Average slid 490 points, or 1.9%, to 24555 while the S&P 500 lost 1.7%, putting both indexes on course to fall into red for the year. The Nasdaq Composite declined 2%, but the technology-heavy index is still up 1.7% in 2018.

The losses come after the Dow industrials plunged nearly 800 points Tuesday ,as investors' concerns over the U.S.-China trade truce renewed fears about the pace of economic growth. Tuesday's declines also pushed the Nasdaq more than 10% below its August high.

"Everything feels out of control right now," said Michael Antonelli, equity sales trader at R.W. Baird & Co. "Clients are starting to get more jittery."

Canadian authorities arrested Huawei Technologies Co.'s chief financial officer, which fanned fears of another escalation in tensions between the world's two largest economies.

Market reaction to the arrest of Huawei's CFO threw into sharp relief the obstacles that lie ahead for negotiators in Washington and Beijing.

"Markets were already under pressure, and the arrest hasn't helped," said Neil Mellor, senior currency strategist at BNY Mellon. "We're back to where we were beforehand, and we're wondering if a deal's possible given how high the stakes are."

Tech firms have been among those worst hit by icy trade relations between the U.S. and China, which have weighed on global markets and prompted fears of slowing global growth so far this year. Dow component Intel fell 1.4% Thursday.

Sharp selling marked a continuation of downbeat trading seen earlier in the week, as optimism from the G-20 waned amid persistent growth fears and sliding U.S. bond yields.

The yield on U.S. 10-year Treasurys was last 2.867% having slipped from 2.921% late Tuesday. The WSJ Dollar Index was last up 0.2%.

In addition to headlines out of China, U.S. investors were awaiting a speech scheduled for Thursday from Federal Reserve Chairman Jerome Powell, which will be scrutinized for signals related to the central bank's interest-rate policy.

While CME data gave a 76.6% probability of a rate increase at the Fed's December meeting, figures show a less clear consensus for 2019, reflecting estimates of just over one rate raise. But some analysts see that as an overly dovish forecast.

"Now everyone is looking at the Fed. The market took the Fed's recent commentary as dovish and our view is that was an exaggerated interpretation," said Christian Keller, head of economics research at Barclays Investment Bank.

Oil giant Chevron, meanwhile, fell 1.8%, with sector peers following suit as a fresh wave of selling pounded oil-and-gas shares and global energy prices.

Oil prices pared some of their earlier losses but Brent crude remained 2.3% lower at $60.15 a barrel, and West Texas Intermediate futures fell 2.8% to $51.43 a barrel, after Saudi Arabia's oil minister said there had not yet been any agreement made over oil output cuts. Still, market participants were expecting an agreement to emerge in Vienna, where the Organization of the Petroleum Exporting Countries and its allies were scheduled to meet Thursday and Friday.

Bleak sentiment in the U.S. echoed that in Europe, where the Stoxx Europe 600 index slid 2.6% in afternoon trading. That index, as well as benchmarks in Germany and the U.K. were all on course to close at two-year lows. The European basic-resources sector led stocks lower and was on course to notch a 17-month low. The fresh wave of negative sentiment hammered the benchmark's technology and energy basket, which fell 2.9% and 2.4%.

Losses were heavy in Asia, where Japan's Nikkei 225 fell around 2%. Hong Kong's Hang Seng Index, as well as tech-dominated indexes like China's Shenzhen A-Share and the Taiwanese Taiex, were all more than 2% lower.

China's Commerce Ministry said Thursday that Beijing would "immediately implement" agreements made at the Group of 20 summit in Argentina involving the Chinese purchase of U.S. products. The ministry also said planned talks on U.S. intellectual property and market-access concerns would occur within the allotted 90-day window before U.S. tariff increases are set to resume.

The Hong Kong-listed shares of China's ZTE Corp. -- a rival to Huawei and the nation's second-largest telecom equipment maker -- fell almost 6%. Shares of Huawei's suppliers and partners also slumped, with phone-camera-lens supplier Sunny Optical Technology down 5.5%. Shares in Telefon AB L.M. Ericsson, one of Huawei's and ZTE's largest competitors, were last 1.7% higher, and were one of the few Stoxx Europe 600-listed stocks to climb Thursday.

The U.S. dollar bonds of privately owned Huawei touched new lows after news broke of its CFO's arrest. The company's debt maturing in 2025 has already been hit this year, and its yield climbed to 5.865% Thursday, up by more than 2 percentage points since January. Bond yields rise when prices fall.

"The panic reaction reflected investors' concerns over a technology battle between the U.S. and China," said Steven Leung, an executive director at UOB Kay Hian.

The impact of those headlines rippled across financial markets, causing at least one company to abandon its initial public offering. Denmark-based media company Adform announced it was postponing its IPO, citing "a period of high volatility and uncertainty in the financial markets, especially as regards technology stocks."

The Shanghai Composite and Shenzhen A-Share indexes have fallen 21% and 29%, respectively.

The Chinese yuan, which has borne the brunt of trade anxieties, was last down 0.6% against the U.S. dollar, despite the China's Commerce Ministry's statements Thursday. The ministry also said it was confident about reaching consensus with the U.S. within three months.

Joanne Chiu contributed to this article

Write to David Hodari at David.Hodari@dowjones.com, Mike Bird at Mike.Bird@wsj.com and Jessica Menton at Jessica.Menton@wsj.com

 

(END) Dow Jones Newswires

December 06, 2018 10:10 ET (15:10 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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