Markets take stock after FTSE’s worst day since Brexit result
The latest selling storm to hit world stock markets has petered out after the FTSE 100 suffered its biggest percentage fall since the day after the Brexit referendum.
Asian indices were mostly in positive territory on Friday after a calmer end to trading in New York while the FTSE was forecast to open almost 2% higher – recovering much of the previous day’s losses.
Then, investors took fright when it emerged the chief financial officer at Chinese telecoms giant Huawei had been arrested at the request of the country’s trade war foe, the United States.
Meng Wanzhou faces extradition from Canada over allegations the global firm broke US sanctions against Iran though a bail hearing was set for later on Friday.
Her detention exacerbated fears that a ceasefire in the trade war agreed between Donald Trump and his Chinese counterpart Xi Jinping was not the breakthrough the market had originally thought.
Add to that issue concerns about the US economy and a recent slump in oil costs – with the OPEC cartel failing to agree production cuts to boost prices – there is a toxic cocktail of factors for investors to consider.
Following the share bloodbath across Europe, the Dow Jones ended Thursday trading just 0.3% lower on Wall Street after an initial heavy sell-off while the tech-dominated Nasdaq fought back to close the session slightly up.
Hong Kong’s Hand Seng, the Shanghai Composite and the Nikkei in Tokyo were all up – but not by much – on the final day of the trading week.
The FTSE was expected to open more positively – in line with its main European counterparts.
Providing some support were hopes the US Central Bank will react to growing fears of a US recession by not raising interest rates as much next year as previously indicated.
Ahead of a key US jobs report on Friday, which was forecast to show steady but not spectacular hiring and wage growth, a report in the Wall Street Journal said the bank would take a ‘wait-and-see approach’.
Rising rates make it more expensive to borrow to invest and it has been a core reason behind selling on world markets this year following a gradual end to post-crisis central bank stimulus.
Analyst Neil Innes, head of Asia-Pacific trade at OANDA, suggested markets may have overreacted this week.
He told the AP news agency: “The Huawei headline could not have come at a worse time, with the market reeling as confusion reigned over the G20 fallout,” he said.
“But when you laminate trade war issues with observed dovish shifts from major central banks, it merely adds a whole new level of unwanted confusion entering year-end.”
He added: “I’m trying to suggest… we were going through a market-driven event rather than a meaningful shift to the dark economic side that had all the doom and ‘gloomers’ coming out of their caves this week.”