A wave of selling hit world stockmarkets Thursday after 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 his Chinese counterpart Xi Jinping.
Fears over the potential trade fallout saw the Frankfurt DAX index, London and Paris all shed more than three percent.
Wall Street joined the global sell-off, the Dow Jones Industrial Average losing more than 2.5 percent in falling to an eight-month low.
US markets had been closed Monday for the funeral of former president George H.W. Bush — but swiftly caught onto the negative vibes emanating first from Asia, then Europe.
“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 Stephen Innes of analysis group Oanda.
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.
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, which deemed it a national security threat.
China expressed outrage, urging Canada and the US to “immediately correct the wrongdoing”.
Deficit insult to injury
Chris Beauchamp, chief market analyst at IG, warned that, quite apart from the Huawei saga, “in what must rank as one of the worst-timed economic releases in recent months, the US trade deficit has hit its widest level in ten years” to deepen the gloom.
Jochen Stanzl, chief market analyst at CMC Markets, saw a “downward trend confirmed (with) further losses set to follow in the coming days and weeks.
He added: “On trading floors there is more and more the realisation that US President Trump has, with his “America First” policy, wrought ‘pointless damage.’“
Trump and Xi had sparked a brief global markets rally 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 uncertainty in Britain as it lurches toward a potential no-deal Brexit.
Prime Minister Theresa May faces an expected defeat next week in her bid to push a controversial agreement with the EU through the British parliament.
“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 tumbled below $60 per barrel on trader fears of an insufficient output cut at a Vienna OPEC meeting. Brent Crude lost more than two dollars to stand at below $59 a barrel.
“Not only were miners in deep distress over the potential for another nosedive in US-China relations, but BP and Shell plunged 3.0-percent 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.
Tech sector hammered
The Huawei news saw tech firms hammered on Asian markets.
Hong Kong-listed ZTE, hit by a US banning order over security fears this year before that was reduced to a massive fine, was almost six percent down.
Market heavyweight Tencent, AAC Technologies and Sunny Optical — a supplier to Huawei — each plunged more than five percent.
Key figures around 1700 GMT
New York – Dow Jones: DOWN 2.4 percent at 24,425.66 points
London – FTSE 100: DOWN 3.2 percent at 6,704.05 (close)
Frankfurt – DAX 30: DOWN 3.5 percent at 10,810.98 (close)
Paris – CAC 40: DOWN 3.3 percent at 4,780.46 (close)
Milan – FTSE MIB – DOWN 3.5 percent at 18,644
EURO STOXX 50: DOWN 3.7 percent at 3,033.95
Tokyo – Nikkei 225: DOWN 1.9 percent at 21,501.62 (close)
Hong Kong – Hang Seng: DOWN 2.5 percent at 26,156.38 (close)
Shanghai – Composite: DOWN 1.7 percent at 2,605.18 (close)
Oil – West Texas Intermediate: DOWN $2.26 at $50.63 per barrel
Oil – Brent Crude: DOWN $2.44 at $59.12
Euro/dollar: DOWN at $1.1343 from $1.1344 at 2200 GMT
Dollar/yen: DOWN at 112.39 yen from 113.19
Pound/dollar: UP at $1.2779 from $1.2734