North American stocks tumbled on Thursday, erasing this year’s slim gains in the S&P 500 and the Dow Jones Industrial Average, as the arrest of a top Huawei executive sparked fears of a flare-up in Sino-U.S. tensions, while weak oil prices added more pressure.
The arrest of Chinese smartphone maker Huawei Technologies Co Ltd’s chief financial officer in Canada for extradition to the United States cast fresh doubts over the prospect of Washington and Beijing striking a deal in their 90-day truce period.
The markets enjoyed a mini rally last week through Monday after the Federal Reserve signaled that the pace of rate increases could slow and the China-U.S. truce over the weekend.
But optimism over a trade resolution faded Tuesday and, along with a drop in longer-dated U.S Treasury yields, rekindled worries of slowing economic growth and sent Wall Street sliding.
Benchmark 10-year Treasury yield held at three-month lows on Thursday and piled more pressure on the market along with a drop in oil prices after the OPEC signaled it may agree to a smaller-than-expected cut in crude output.
“In general, we all have the same questions we did on Tuesday,” said Art Hogan, chief market strategist at B. Riley FBR in New York. “The news on Huawei throws another level of uncertainty on our ability to actually come to some agreement with China.”
Data showed the U.S. trade deficit jumped to a 10-year high in October, suggesting the Trump administration’s tariff-related measures to shrink the trade gap were ineffective.
At 10:24 a.m. ET, the TSX/S&P composite index was down 318.55 poinbts, or 2.1 per cent, to 14,854.18
In New York, the Dow was down 473.95 points, or 1.86 per cent, at 24,572, the S&P 500 was down 43.89 points, or 1.64 per cent, at 2,655.80 and the Nasdaq Composite was down 83.29 points, or 1.17 per cent, at 7,074.68.
All the 11 major S&P sectors were lower, led by the technology sector’s 1.93-per-cent drop.
Worries over Huawei, one of the largest buyers of chips according to research firm Bernstein, sent the Philadelphia Semiconductor index tumbling 2.30 per cent.
The trade-sensitive industrial sector fell 1.88 per cent. Energy stocks retreated 2.92 per cent, while the drops in the bond market pushed financials 2.51 per cent lower.
The CBOE Volatility Index, known as Wall Street’s “fear gauge,” jumped to its highest since Oct. 30.
Apple Inc fell 3.1 per cent and was the biggest drag on the S&P and the Nasdaq, while trade bellwether Boeing Co’s 1.9-per-cent decline weighed the most on the Dow.
Asian markets took a beating. Huawei is not listed, but China’s second-largest telecom equipment maker, ZTE Corp, sank 9 per cent in Hong Kong while most of the nearby national bourses lost at least 2 per cent.
London, Frankfurt and Paris then slumped to 2-year lows as tech companies, banks and carmakers fell nearly 3 per cent. Oil stocks headed for their worst day in 2 1/2 years as crude prices spilled as much as 5 per cent going into an OPEC meeting in Vienna.
“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 John Hardy, Saxo Bank’s head of FX strategy. “It think we should all be very careful. It is not looking good, especially if the S&P 500 goes to new lows.”
Japan’s Nikkei had shed 1.9 per cent, closing at its lowest level since Oct. 30, with semiconductor-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 per cent too . Hong Kong’s Hang Seng dropped 2.5 perc ent and Chinese blue chips fell 2.1 per cent to take their 2018 loss to 20 per cent.
The Canadian dollar fell against its U.S. counterpart on Thursday to a nearly 18-month low, as Bank of Canada Governor Stephen Poloz said the economy was weaker than forecast and predicted low oil prices would cut growth.
Poloz’s comments were likely to reinforce market expectations that the pace of future rate hikes will ease off.
The Canadian dollar was trading down 0.4 per cent against the greenback, at $1.3415 or 74.54 U.S. cents. The currency hit its weakest level since June 12, 2017 at $1.3445 earlier in the session.
Poloz, speaking a day after the central bank kept interest rates on hold, repeated that more tightening would be needed to keep inflation on track but added the pace would be decidedly data-dependent.
Much of the bank’s discussion ahead of the interest rate announcement on Wednesday had been focused on oil, he said. Prices for crude, one of Canada’s main exports, are sinking amid a supply glut and this is hurting Alberta, the western province which is home to the domestic industry.
Canada’s trade deficit widened in October to $1.17-billion, as both imports and exports dipped, Statistics Canada said on Thursday.
“The unexpectedly large widening of the trade deficit in October is a sign of things to come, with continued falls in energy prices in November set to cause export values to decline further,” Stephen Brown, senior Canada economist at Capital Economics, said in a note.
Oil tumbled in a volatile session on Thursday after OPEC signaled it may agree to a smaller output cut than expected and as concern over the economic impact of trade tensions hit global stock markets.
The Organisation of the Petroleum Exporting Countries (OPEC) is meeting in Vienna to decide its production policy in coordination with non-OPEC producers including Russia, Oman and Kazakhstan.
Expectations had been for a joint cut of between 1 and 1.4 million barrels per day (bpd), until Saudi energy minister Khalid al-Falih said before the meeting that the “OPEC+” group would be happy with a cut of just 1 million bpd.
Brent crude futures was down $1.41 on the day to $60.15 a barrel, having hit a session low of $58.36, while U.S. futures were down $1.38 to $51.51 a barrel.
The two have lost 30 per cent in value this quarter alone.
“Overall, this shows the weak momentum in the market right now and it has clearly not been helped by what has happened over night ... with the sell-off in stocks and weakness in bond yields,” Saxo Bank senior manager Ole Hansen said.
“But (OPEC) know how to handle markets. They might be talking it down and then delivering a sucker-punch a bit later, that could also be the outcome.”
Led by Saudi Arabia, OPEC’s crude oil production has risen by 4.1 per cent since mid-2018, to 33.31 million bpd.
“We assume key OPEC producers - Saudi Arabia, the United Arab Emirates and Kuwait – together with Russia and Oman, will push through a moderate reduction in output in place through 2019,” Wood Mackenzie vice president of macro oil Anne-Louise Hittle said.