LONDON, May 20 — Stock markets weakened today as concerns mounted about an escalating fallout from a US crackdown on China’s Huawei Technologies.
Investors already on edge about an escalating US-China trade dispute were further rattled after Beijing accused Washington of harbouring “extravagant expectations” for a trade deal, underlining the gulf between the two sides.
Asian shares had managed to reverse some of last week’s losses on Monday after Washington said it would lift tariffs in North America, and as investors cheered apparent wins by Conservative incumbent parties in elections in Australia and India.
But the mood did not carry over to Europe, where weak corporate earnings added to the gloom.
The pan-European Euro STOXX 600 extended earlier losses and was down 1.06 per cent by 1100 GMT — the index, down 3.5 per cent in May, is on track for its first monthly loss in 2019.
The German DAX slid 1.38 per cent, while France’s CAC 40 weakened 1.39 per cent.
US President Donald Trump’s government added Huawei to a trade blacklist last week, imposing restrictions that will make it difficult to do business with US companies.
The repercussions quickly became evident as Google suspended some business with Huawei.
In Europe, chipmakers Infineon Technologies, AMS and STMicroelectronics dropped sharply, falling between 6 per cent and 12 per cent on growing fears of a disruption to the industry’s global supply chain.
“Market volatility continues to stem from announcements and interpretations of what is going on in trade disputes between the US and its trading partners, but principally China,” said Jasper Lawler, head of research at London Capital Group.
“China are unlikely to take Google’s suspension of business with Huawei lying down.”
On the positive side, a US decision on Friday to remove tariffs on Canadian steel and aluminium prompted Canada’s foreign minister to vow the quick ratification of a new North American trade agreement.
The MSCI index of world shares, which tracks shares in 47 countries, slipped 0.14 per cent, leaving it 3.9 per cent below its 2019 highs. The sudden return of trade war jitters has sent the stock market’s year-to-date rally into reverse.
US S&P 500 e-mini futures dropped 0.51 per cent.
Prominent investor Jim Rogers, who co-founded the Quantum Fund with George Soros, told the Reuters Global Markets Forum that he believed Washington and Beijing would soon announce a trade deal, although the current spat would not be the last time Trump tried to exploit the prospect of a trade war.
“These are negotiating tactics from Mr Trump at the moment. What will happen is we will have some good news, the market will have a rally. It will probably be the last rally,” he said.
Oil prices briefly rallied after Saudi Energy Minister Khalid al-Falih said that there was consensus among Opec and allied oil producers to reduce inventories “gently”.
Rising tensions in the Middle East have also supported oil prices in recent days. Trump on Sunday tweeted that a conflict with Tehran would be the “official end” of Iran.
Both US crude and Brent crude jumped more than 1 per cent, before giving up most of those gains as broader risk sentiment soured.
US West Texas Intermediate crude traded at US$62.75 a barrel by 1030 GMT after earlier trading above US$63. Brent crude was at US$72.30 per barrel.
In currency markets, the Australian dollar jumped nearly 1 per cent to US$0.6890 after the centre-right Liberal National Coalition pulled off a shock win in a federal election, beating the centre-left Labor party.
The Indian rupee also rallied, gaining more than 1 per cent to 69.36 rupees per dollar after exit polls pointed to a majority for Prime Minister Narendra Modi’s Bharatiya Janata Party and allies.
China’s offshore yuan rebounded after touching its weakest against the dollar since November on Friday. It last traded up 0.1 per cent at 6.944 per dollar.
China’s central bank is expected to use foreign exchange intervention and monetary policy tools to stop it weakening past the psychologically important 7 yuan-per-dollar level in the near term, sources told Reuters.
The dollar was little changed against the euro at US$1.1155.
Sterling recovered 0.2 per cent to US$1.2741 after suffering its biggest weekly loss since 2017 after an apparent collapse in Brexit talks in London.
German government bond yields edged higher. That followed a fall towards new 2-1/2 year lows last week after investors nervous about trade and a global economic slowdown flocked to safe-haven debt.
The 10-year US Treasury yield was little changed at 2.396 per cent.
Austrian yields held firm after a scandal prompted Chancellor Sebastian Kurz to pull the plug on his coalition with the far right at the weekend, raising the chances of a snap election. — Reuters