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article imageMarkets tumble as Huawei arrest rekindles US-China trade fears

By Roland JACKSON (AFP)     Dec 6, 2018 in Business

World markets slumped Thursday 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.

Oil prices meanwhile sank ahead of the latest OPEC output decision, with Trump pushing the cartel to hike output and guarantee low prices while kingpin Saudi Arabia wants to cut production to support the market.

In foreign exchange, the pound held up despite Britain lurching toward a potential no-deal Brexit -- with Prime Minister Theresa May facing defeat in her attempts to push through parliament a controversial agreement with the EU.

Asian stock markets suffered a fierce selloff as it emerged that Huawei chief financial officer Meng Wanzhou had been held in Canada and was facing extradition to the United States over alleged Iran sanctions breaches by the firm.

Trump and Xi had sparked a brief global markets rally on Monday after clinching a tariffs ceasefire at the G20 summit in Buenos Aires last weekend.

But the rally ran out of steam with investors fretting over the fragile state of the world economy and fresh uncertainty surrounding Brexit.

The shock Huawei news, which emerged overnight, has dealt a blow to hopes of trade peace between Washington and Beijing.

Major European capitals like Frankfurt, London and Paris saw their stock markets plummet more than two percent.

- 'Severe' sell-off -

"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".

Investors are now braced for fresh falls when Wall Street reopens, following Wednesday's closure for a US national day of mourning for former president George H.W. Bush.

- 'Wild week' -

"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 tank 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-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.

"We're looking for a sufficient cut to balance the market, equally distributed between countries," Saudi oil minister Khalid al-Falih told reporters.

However, the remarks were interpreted as being 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."

- Tech sector hammered -

The Huawei news also sent shudders through Hong Kong and Shanghai markets, where tech firms were hammered.

Hong Kong-listed ZTE, which was subject to 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.

In Shanghai, Wingtech Technology was down by its daily limit of 10 percent, while Raisecom Technology and Fujian Raynen Technology both dived more than four percent.

- Key figures around 1215 GMT -

London - FTSE 100: DOWN 2.2 percent at 6,767.65 points

Frankfurt - DAX 30: DOWN 2.4 percent at 10,932.78

Paris - CAC 40: DOWN 2.2 percent at 4,836.29

Milan - FTSE MIB - DOWN 2.5 percent at 18,847.16

EURO STOXX 50: DOWN 2.1 percent at 3,084.71

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)

New York - Dow Jones: CLOSED

Oil - West Texas Intermediate: DOWN $1.45 at $51.44 per barrel

Oil - Brent Crude: DOWN $1.13 at $60.43

Euro/dollar: DOWN at $1.1343 from $1.1344 at 2200 GMT

Dollar/yen: DOWN at 112.80 yen from 113.19

Pound/dollar: UP at $1.2752 from $1.2734


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