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Whiplash on Wall Street as Tension About Global Economy Mounts
(35 minutes later)
The arrest of a top Chinese technology executive intensified concerns about an emerging cold war between the world’s two largest economies, sending stock markets around the world lower on Thursday.
A steep slide followed by a strong recovery whipsawed investors on Thursday, as concerns about the global economy, trade tensions and interest rates kept markets on edge.
The chief financial officer of the Chinese telecom giant Huawei, Meng Wanzhou, was arrested over the weekend, Canadian authorities said on Wednesday night. The arrest, which came the same day President Trump and President Xi Jinping of China agreed to a trade truce, further complicated efforts to resolve to a trade dispute that’s weighed on financial markets.
Stocks fell around the world after the arrest of a top Chinese technology executive intensified concerns that China and the United States, the world’s two largest economies, could be entering a risky new chapter in their trade dispute. But Wall Street recovered most of those losses in an afternoon rally predicated on the prospect that the Federal Reserve may slow down on interest rate increases next year.
Stock markets in Asia and Europe tumbled on Thursday, and an early drop on Wall Street erased gains for the year before stocks in the United States recovered. The S&P 500-stock index ended trading on Thursday down about 0.2 percent, after falling more than 2.5 percent earlier in the day.
At one point in the day, the S&P 500 was down as much as 2.9 percent, mirroring steep declines in Asia and Europe. A recovery late in the trading day, however, left the index down only about 0.2 percent at the closing bell.
In recent days, skepticism had already grown about prospects for that 90-day truce, as Trump administration aides downplayed the chances of striking a broad deal and Mr. Trump threatened further tariffs on imports from China, even calling himself a “Tariff Man” in messages on Twitter.
The worldwide drop was set off by news that the chief financial officer of the Chinese telecom giant Huawei, Meng Wanzhou, had been arrested in Canada at the request of the United States. Her detention on Saturday, the same day President Trump and President Xi Jinping of China agreed to a trade truce, could further complicate efforts to resolve a dispute that has weighed on financial markets in recent weeks.
But the arrest of Ms. Meng, the daughter of Huawei’s founder, threatened to open a riskier new chapter in a fight that investors increasingly see as a threat to performance of financial markets and the economy.
In recent days, skepticism had already grown about prospects for that 90-day truce, as Trump administration aides played down the chances of striking a broad deal and Mr. Trump threatened further tariffs on imports from China, even calling himself a “Tariff Man” in messages on Twitter.
“This is going to continue to be a headwind at a time when people are worried about global growth,” said Dan Clifton, a head of policy research with analysis firm Strategas.
But the arrest of Ms. Meng, the daughter of Huawei’s founder, threatened to open a riskier new chapter in a fight that investors increasingly see as a threat to financial markets and the economy.
For most of the year, the United States had appeared insulated from such concerns. Less reliant on trade than most wealthy nations, the United States — and American financial markets — had been global standouts for much of 2018, thanks in part to burst of fiscal stimulus from Trump administration tax cuts.
“This is going to continue to be a headwind at a time when people are worried about global growth,” said Dan Clifton, a head of policy research with the analysis firm Strategas.
But in the rest of the world, the trade war has been causing considerable damage. In China, where the economy is growing at its slowest pace in a decade, stocks have slumped more than 20 percent. Export-based economies that are closely tied to China — like Japan and Germany — have started to struggle too. Emerging markets, which often supply the commodities that have fueled the Chinese boom in recent decades, have been hammered.
For most of the year, the United States — less reliant on trade than most wealthy nations — had been a global standout, thanks in part to a burst of fiscal stimulus from the Trump tax cuts, while the trade war caused trouble in the rest of the world’s financial markets.
Ms. Meng was arrested in Vancouver on Saturday. United States authorities are seeking Ms. Meng’s extradition but have not said what prompted the arrest.
In China, where the economy is growing at its slowest pace in almost a decade, stocks have slumped more than 20 percent. Export-based economies that are closely tied to China — like Japan and Germany — have started to struggle too. Growth in emerging markets, which often supply the commodities that have fueled the Chinese boom in recent decades, has also been hurt.
Also weighing on stocks on Thursday was a drop in oil prices, which came even as Saudi Arabia pressed OPEC for production cuts. Exxon Mobil and Chevron both dropped more than 1 amid an ongoing sell-off in crude oil markets.
But in recent weeks, worry about the trade war has begun to take hold in the United States as well. Since its peak in late September, the S&P 500 has declined by 8 percent, as investors grew concerned about the outlook for corporate profits, the potential costs of the trade spat and rising interest rates, which are traditionally viewed as a negative for stocks.
Persistently weak prices for crude oil have raised questions about the strength of the global economy. In Europe, growth has slowed amid ongoing uncertainty surrounding Britain’s exit from the European Union and the chance that Italy’s populist government is gearing up for a showdown with Brussels over budgetary issues.
The outlook for interest rates shifted suddenly on Thursday, when The Wall Street Journal published an article saying Federal Reserve officials were considering emphasizing a “wait-and-see” approach to future rate increases at the central bank’s meeting later this month. Although this message was in line with previous Fed comments, the stock market began to recover soon after the article was published.
Even economic powerhouse Germany, the standout economy on the Continent, contracted during the third quarter, as the uncertainty over global trade crimped its export-focused economy. European stocks tumbled sharply on Thursday, with indexes in Germany, France and Britain all falling more than 3 percent.
The rally did little for investors in energy shares. The sector has been hard hit by a slump in crude oil prices in recent weeks and was the worst-performing part of the S&P 500 on Thursday.
Many of Germany’s exports go to China, where economic growth has slowed to the most sluggish pace in a decade, amid the ongoing trade tensions with the United States.
Prices for benchmark American crude oil fell more than 2 percent on Thursday, as OPEC ended its meeting on Thursday without reaching a deal to reduce oil output, even as Saudi Arabia pressed for production cuts. Exxon Mobil and Chevron both dropped more than 1 percent.
In Asia, all major markets ended the trading day down more than 1 percent, and several slid further. The tone for the day was set in Hong Kong, where investors rattled by Ms. Meng’s arrest focused their attention on technology stocks and the overall market dropped 2.5 percent. The shock wave was felt across the border in Shenzhen, where stocks fell 2.2 percent.
Elsewhere, yields on government bonds dropped sharply early in the day as investors flocked to the safety of Treasury debt. But the declines in yields moderated late in the day, in tandem with the shift in stock trading.
In Tokyo, the market fell nearly 2 percent after the governor of the Bank of Japan warned that the trade war would hurt the Japanese economy. Traders in Seoul, South Korea, pushed the market down more than 1.5 percent; stocks in Taiwan were down 2.3 percent.
Bond yields, which move in the opposite direction of prices, tend to drop as investors downgrade expectations for growth and inflation.
“The world economy is still expanding at a rapid pace, but cracks are starting to appear in the global growth picture,” Brian Coulton, a chief economist at Fitch Ratings, wrote in a note to clients. Fitch has repeatedly warned of China’s debt binge and the challenges facing the second-largest economy after the United States.
Those lower yields can crimp the profitability of banks, which charge interest rates that are based on government bond yields. The threat of such pressures has hammered American financial stocks in recent days. The S&P 500 financial sector index was the second-worst-performing part of the market on Thursday, dropping 1.4 percent.
Those lower yields can crimp the profitability of banks, which charge interest rates that are based on government bond yields. The threat of such pressures has hammered American financial stocks in recent days.
And while few expect a hasty end to the economic expansion in the United States, the recent swings in stocks suggest investors are increasingly worrying about any threats that could worsen growth forecasts.
The sour mood in stocks on Thursday seems a far cry from Monday, when markets were lifted by the announcement that Mr. Trump and Mr. Xi had reached a trade truce on the sidelines of the Group of 20 meeting. Stocks around the globe soared on the news.
“There’s a bit of a growth slowdown in place,” said Kate Moore, chief equity strategist for BlackRock. “This is a very different environment from where we were this time last year.”
But a series of tweets from Mr. Trump, who called himself “a Tariff Man” prompted a new round of selling on Tuesday. Markets in the United States were closed Wednesday to honor the death of former president George H.W. Bush.
The only thing that seems certain is more uncertainty, analysts said.
“While the likelihood of an ongoing dialogue after months of no discussions and the pause on tariffs are still positive developments, it’s clear that negotiations will be challenging and a source of volatility,” Mark Haefele, chief investment officer at UBS wealth management, said in a note to clients.
