An early plunge briefly knocked more than 700 points off the Dow Jones Industrial Average as the arrest of a senior Chinese technology executive threatened to cause another flare-up in tensions between Washington and Beijing.
The sell-off eased by late afternoon, however, after The Wall Street Journal reported that said the Federal Reserve is considering breaking with its current approach of steady interest rate hikes, favoring a wait-and-see approach. That was relief to investors worried that the Fed might raise interest rates too fast, which could choke off economic growth.
Traders continued to shovel money into bonds, a signal that they see weakness in the economy ahead. The yield on the 10-year Treasury note fell to 2.89 percent from 2.92 percent on Tuesday, a large move.
Losses in banks and energy and industrial stocks outweighed gains in internet and real estate companies.
The Fed has raised rates three times this year and is expected to boost rates for a fourth time at its Dec. 18-19 meeting of policymakers. That steady pace of rate hikes has begun to worry some investors amid growing signs that some sectors of the economy are hurting, including U.S. home sales. At the same time, there has been growing evidence that the global economic growth is slowing.
“The market seems right now to be focused on increased risks for a 2020 recession,” said Patrick Schaffer, Global Investment Specialist, J.P. Morgan Private Bank. “It’s a very hard market to buy when you see really strong signals that we are indeed late (in the economic) cycle.”
Thursday’s initial wave of selling in the market came about as traders reacted to the news that Canadian authorities arrested the chief financial officer of China’s Huawei Technologies on Wednesday for possible extradition to the U.S. The Globe and Mail newspaper, citing law enforcement sources, said Meng is suspected of trying to evade U.S. trade curbs on Iran.
House Democrats are calling for the release of the full report from special counsel Robert Mueller, after a four-page summary from Trump appointee Attorney General William Barr say Mueller‘s team found no evidence of conspiracy between Donald Trump and the Russian government during the 2016 presidential election season.
Meng is a prominent member of Chinese society as deputy chairman of the board and the daughter of company founder Ren Zhengfei. China has demanded Meng’s immediate release.
Markets rallied on Monday on news that Trump and Xi agreed to a temporary, 90-day stand-down in their trade dispute. That optimism quickly faded as skepticism grew that Beijing will yield to U.S. demands anytime soon, leading to a steep sell-off in global markets on Tuesday.
On Thursday, China’s government said it would promptly carry out the tariff cease-fire with Washington. It also expressed confidence that the two nations can reach a trade agreement. The remarks suggest Beijing wants to avoid disruptions from Meng’s arrest.
Even so, investors remained skeptical.
“Trade tensions aren’t going away,” Schaffer said. “Contradictory statements from the administration have given some people a little bit of pause with respect to the optimism that people felt following the Argentina G-20 conference.”
Special counsel Robert Mueller‘s investigation into the 2016 election determined that nobody from the Trump campaign colluded with Russia, according to a letter to Congress from Attorney General William Barr.
Major indexes overseas also fell sharply. The DAX in Germany dropped 3.5 percent, while France’s CAC 40 lost 3.3 percent. The FTSE 100 in Britain declined 3.1 percent, its biggest drop since the country held a vote to leave the European Union in June 2016.
Hong Kong’s Hang Seng index tumbled 2.5 percent and Japan’s benchmark Nikkei 225 fell 1.9 percent. Australia’s SP/ASX 200 lost 0.2 percent, while South Korea’s Kospi sank 1.6 percent. Shares also fell in Taiwan and all other regional markets.
Oil prices fell sharply as traders appeared to doubt that an expected production cut by OPEC will be enough to boost the price of crude.
OPEC countries gathered in Vienna Thursday to find a way to support the falling price of oil. Analysts predicted the cartel and some key allies, like Russia, would agree to cut production by at least 1 million barrels per day. OPEC heavyweight Saudi Arabia indicated it was in favor of such a cut.
The expectation did not keep the price of oil from falling, however, as investors focused on the potential economic disruption from any escalation in the U.S.-China trade dispute.
The dollar weakened to 112.65 yen from 113.19 yen late Wednesday. The euro rose to $1.1373 from $1.1342.
Copyright Associated Press