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Monday, 10 December 2018

R.I.P. QE - Five questions for the ECB


LONDON (Reuters) - Thursday could prove to be a historic moment for the European Central Bank, which is expected to formally bring its unprecedented 2.6 trillion euro (2.3 trillion pounds) stimulus scheme to an end.

But with the economy weakening, trade tensions darkening the outlook and headwinds still on the horizon in the shape of Italy and Brexit, financial markets are looking ahead to next year and just how the ECB will protect the bloc from a severe downturn.

With ECB chief Mario Draghi’s final news conference of the year likely to prove anything but dull, we take a look at some key questions on the radar for investors.

 1. In what ways will the ECB address a weakening economy?

The ECB is likely to maintain that economic conditions remain strong enough to allow it to bring almost four years of quantitative easing (QE) to an end.

At the same time, it will have to address recent economic data: euro zone manufacturing activity expanded at its weakest rate in over two years in November; powerhouse economy Germany shrank in the third quarter for the first time since 2015 — the year the ECB launched QE.

Economists say the ECB is likely to trim rather than slash its growth forecasts, due out on Thursday and maintain, for now, an assessment that risks to the economy are “broadly balanced.”

“There is ample evidence that risks have indeed shifted to the downside relative to the ECB’s assessment from three or six months ago, but they could still resist the pressure for communication purposes, given that they will end net asset purchases at the same time,” said Pictet Wealth Management strategist Frederik Ducrozet.


2. Could the ECB change its guidance on interest rates?

Indeed, recent weeks have seen a sharp scaling back of rate-hike expectations in the face of weak data, trade war fears and volatile markets. Money market pricing suggests investors price roughly a 80 percent chance of a 10 basis point rate hike from the ECB next year, down from 100 percent last month.

Since June the ECB has maintained that it will keep interest rates unchanged well into next year and recent comments from policy makers suggest this will remain the case even as concern about the economic outlook grows.

“They may say they will raise rates at the end of the summer or end of 2019, but a lot can happen in that time,” said Guy Foster, head of research at wealth management firm Brewin Dolphin.


3. Where is the long-awaited rise in core inflation?


Headline inflation has been above the ECB’s near 2 percent target for months now. But underlying inflation excluding food and energy prices continues to disappoint.

This so-called core measure — watched closely by the ECB — rose just 1.1 percent in November, down from 1.2 percent in October.

A key market gauge of long-term euro-zone inflation expectations meanwhile is hovering close to its lowest in over a year, dragged down by oil prices which have tumbled some 30 percent in the past two months.

Against this backdrop, a downgrade to ECB inflation forecasts is unlikely to be a surprise. The ECB may play up the economic boost from weak oil since the euro area is a net oil importer and cheaper crude lifts disposable income.

4. What will the ECB say about re-investments from maturing bonds?

Policymakers are leaning towards making only nuanced changes to how the bank reinvests cash from maturing bonds, including keeping the duration of purchases open, sources with knowledge of the discussion told Reuters in late November.

ECB Chief Economist Peter Praet said recently that markets were right to expect a more precise definition at the December meeting on reinvestments given that so far the ECB has said only that these will continue for an extended period.

Markets see reinvestments continuing for about two years after the first interest-rate hike and policymakers say they are comfortable with these expectations.

U.S. sees 'hard deadline' for China trade deal
With quantitative easing set to end, reinvestments are poised to become an important policy tool — especially for bond markets were asset purchases have pinned down borrowing costs.

5. Is it time to TLTRO?

Perhaps the time for a new round of cheap, multi-year loans to banks, known formally as Targeted Long-Term Refinancing Operations (TLTROs) is getting nearer.

Sources told Reuters last week that ECB policymakers are debating ways to wean the currency bloc of easy money, floating ideas such as a new kind of TLTRO and staggered rate increases.

Banks in Italy, Spain, Portugal and Greece still borrow more from the ECB, particularly via TLTROs, than they deposit. This meant cash-poor banks in these countries would need to rely on weekly ECB auctions for cash once TLTROs expire.

Because this would push up the rate at which banks lend to each other, which was currently anchored to the ECB’s sub-zero deposit facility, making borrowing more expensive for the rest of the economy, talk of a new round of TLTROs is growing.

Policymakers are open to discussing a new round of multi-year loans to banks next year, albeit on different terms than previous editions, the sources said.

Still, this discussion is just starting and a decision on this front is not expected on Thursday.

Reporting by Dhara Ranasinghe

Dollar little changed after biggest weekly loss in three months


LONDON (Reuters) - The dollar consolidated losses on Monday after posting its biggest weekly drop in more than three months last week as weak U.S. data undercut expectations of more interest rate increases in the world’s biggest economy.

Widening interest rate differentials between the United States and the rest of the world, driven by a confident U.S. Federal Reserve, has fueled an unlikely dollar rally this year. But weak data in recent weeks has clouded the currency’s prospects for next year.

U.S. non-farm payrolls increased by 155,000 jobs last month, below a median forecast of 200,000 jobs, and the wage increase was weaker than expected, even though its annual rise remained near the highest level in almost a decade.


Apart from weak data, some Fed policymakers have struck a cautious tone about the economic outlook, possibly flagging a turning point in its monetary policy and lowering the expectations of U.S. rate hikes priced into money markets.

Futures markets are now pricing in only a 44 percent chance of a U.S. rate increase next year compared with nearly 80 percent last Monday as the U.S. bond yield curve has flattened.

“Fed fund expectations are dropping like a stone and that is a big obstacle for the dollar, though there is plenty of event risk out there this week that will give plenty of thought for dollar bears,” said Ulrich Leuchtmann, an FX strategist at Commerzbank in Frankfurt.


Against a basket of currencies .DXY, the dollar was flat after falling 0.8 percent last week, its biggest weekly drop since late August.

The euro led gains, rising 0.34 percent at $1.1470 though market traders said currency markets will be in a wait-and-watch mode.

French President Emmanuel Macron will address the country at 2000 Paris time (1900 GMT) on Monday as he seeks to “yellow vest” anti-government protesters that have wreaked havoc in Paris during the weekend.

In London, Theresa May faces an internal revolt against her Brexit deal before a vote in the parliament on Tuesday. May plans to push ahead with the vote, but senior lawmakers in her own party put pressure on her to go back to Brussels and seek a better offer.

Nissan seeks to block Ghosn from apartment
A rejection could throw plans for Britain's exit into turmoil and leave her own political future hanging in the balance. Against the dollar, the British pound GBP=D3 was flat at $1.2720.


Reporting by Saikat Chatterjee

Friday, 7 December 2018

World stocks attempt rebound after selloff


LONDON (Reuters) - World stocks attempted a rebound on Friday with Asian and European markets gaining modestly after the previous day’s selloff, while oil prices fell as producers bickered over the details of an output cut.

The pan-European STOXX 600 index was up 1.2 percent by 0857 GMT, after falling as much as 3.2 percent during Thursday’s rout, which was triggered by the arrest of the chief financial officer of Chinese smartphone-maker Huawei in Canada.

The arrest, coming on the heels of a 90-day trade truce between the United States and China, triggered fears that the dispute could escalate further and dented hopes for a resolution.

The MSCI All-Country World Index, which tracks shares in 47 countries, was up 0.3 percent on the day, on track to end the week down 2 percent.

Chinese shares, which were up earlier in the day, slipped into negative territory with the blue chips .CSI300 off 0.1 percent. E-Mini futures for the S&P 500 also started firmer but were last down 0.4 percent.


MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS nudged up 0.2 percent, though that followed a 1.8 percent drubbing on Thursday. Japan's Nikkei .N225 added 0.8 percent.

Markets also face a test from U.S. payrolls data later in the session amid speculation that the U.S. economy is heading for a tough patch after years of solid growth.

Federal Reserve Chairman Jerome Powell emphasised the strength of the labour market in remarks made late Thursday.

Economists polled by Reuters forecast jobs rose by 200,000 in November after surging 250,000 in October. The data is due at 1330 GMT.

“After the G20 Summit, markets have focussed on the most recent U.S. yield curve developments,” analysts at Credit Suisse wrote, noting the inversion of the spread between 2-year and 5-year U.S. yields.


“Yet we believe that the risks of a downturn are very limited, considering how strong labour markets are in most economies. We therefore think that risk assets should rebound and regard the yield curve developments essentially as a reflection of a more neutral Federal Reserve going forward.”

The mood in risk-asset markets brightened a little after the Wall Street Journal reported Fed officials were considering whether to signal a new wait-and-see mentality after a likely rate increase at their meeting in December.

That only added to recent feverish speculation that the central bank was almost done hiking rates, given concerns about global growth and the disinflationary impact of collapsing oil prices.

Interest rate futures rallied hard in massive volumes with the market now pricing in less than one hike next year. A month ago they had been betting on three increases.

The news helped Wall Street pare steep losses and the Dow .DJI ended Thursday down 0.32 percent, while the S&P 500 .SPX lost 0.15 percent. The Nasdaq .IXIC managed to advance 0.42 percent.

FLATTENED
Treasuries extended their blistering rally, driving 10-year yields down to a three-month trough at 2.8260 percent, before last trading at 2.8827 percent.

Yields on two-year notes fell a huge 10 basis points at one stage on Thursday and were last at 2.75 percent.

Investors also steamrolled the yield curve to its flattest in over a decade, a trend that has historically presaged economic slowdowns and even recessions.

“The sort of flattening of the yield curve that we have seen recently usually indicates that investors think the Fed is nearing the end of a tightening cycle, and that rate cuts may even be on the horizon,” argued analysts at Capital Economics.

The seismic shock spread far and wide. Yields on 10-year paper sank to the lowest in six months in Germany, almost 12 months in Canada and 16 months in Australia.

The sea change in expectations took a toll on the U.S. dollar as bulls had been counting heavily on a steady widening rate differential to propel the currency.


The greenback eased against a basket of currencies to 96.823 .DXY, and fell to 112.80 yen JPY= from a 113.85 high at the start of the week. The euro was flat at $1.13750 EUR=.

The cryptocurrency Bitcoin took a fresh spill to be down almost 18 percent for the week at $3,362.89.

In commodity markets, gold firmed to near a five-month peak as the dollar eased and the threat of higher interest rates waned. Spot gold XAU= stood 0.1 percent higher at $1,239.49 per ounce.

Oil was less favoured, however, falling further as OPEC delayed a decision on output cuts while awaiting support from non-OPEC heavyweight Russia.

Brent futures fell 0.5 percent to $59.77 a barrel, while U.S. crude also lost half a percent to $51.19.

Reporting by Ritvik Carvalho

Dollar struggles on Fed pause talk ahead of jobs data


TOKYO (Reuters) - The dollar struggled to recover in Asian trade on Friday, hobbled by fresh speculation that a widely expected rate hike later this month could be the last before Federal Reserve hits the pause button on its tightening cycle.

Investors have been alarmed by recent sharp falls in U.S. treasury yields, with an inversion of the yield curve signaling a sharp economic slowdown or even a recession down the road.

Their immediate focus was on November U.S. non-farm payrolls, unemployment and wage data due to be released later on Friday for clues to how the world’s top economy is faring.

“Arguably, one of the strongest parts of the U.S. economy has been the labor market,” said Chris Weston, Melbourne-based head of research at foreign exchange brokerage Pepperstone. “If we see any cracks appearing in there, the U.S. dollar will start to fade off.”

Dollar investors were given more reason to be cautious after the Wall Street Journal reported Fed officials are considering whether to strike a wait-and-see attitude after a likely rate increase at their meeting in December.

The dollar index .DXY, which measures the greenback against a basket of six major peers, was virtually flat at 96.802. The index shed 0.3 percent during the previous session, closing at one-week low and down 0.9 percent from a 17-month peak hit on Nov. 12.

The benchmark U.S. 10-year Treasury yield was last at 2.896 percent after dipping overnight to its lowest level since late August.

The dollar has slipped after Fed Chairman Jerome Powell said last week that U.S. interest rates were nearing neutral levels, which markets interpreted as signaling a slowdown in rate hikes.

If the Fed raises interest rates as expected at its Dec. 18-19 meeting, it would be the fourth hike this year, and investors are focused on how much further the tightening cycle has to run.


“The guidance going forward will be key to yields and equity market moves, which right now foreign exchange markets seem to be reacting to,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

Interest rate futures implied traders see no more than one rate increase from the Fed in 2019, compared with previous expectations for possibly two rate hikes, according to CME Group’s FedWatch program.

On Friday, the dollar was steady against the euro EUR= at $1.1378. Against the Japanese yen JPY=, it tacked on 0.1 percent to 112.79 yen.

The single currency had gained 0.3 percent against the dollar during the previous session while the yen rose about a quarter of a percent.

The Canadian dollar sat at C$1.3388, basically unchanged from Thursday’s close. The loonie had hit a 1-1/2-year low of C$1.3445 against the greenback overnight after the Bank of Canada suggested the pace of future rate hikes could be more gradual.

The Australian dollar AUD=D4 was flat at $0.7236, not far off a three-week trough of $0.7192 hit on Thursday.

The greenback has been pressured this week by an inversion in part of the U.S. yield curve seen as an early warning sign for a potential recession.

The spread between the two-year and five-year U.S. Treasury yields inverted this week and the two-year/10-year spread was at its tightest in more than a decade amid a sharp fall in long-term rates.

Historically, the economy has taken anywhere between 12 months and 24 months to fall into a recession when the yield curve inverts.


Some market participants believe the dollar index may have peaked out, State Street’s Wakabayashi said.

Financial institutions and companies usually take extra efforts to fund their operations over the year-end, which often leads to increased demand for the dollar as its the world’s most liquid currency, but Wakabayashi believed it was less pronounced this year.

“The dollar funding over the calendar year-end hasn’t really been as aggressive as we’ve seen in the past few years,” he said. “If the natural demand does not seem to be appearing in the market, then I think the people who are holding on to those dollars may look to unwind some of those trades.”

Reporting by Daniel Leussink

Asia shares struggle to rally, oil skids further


SYDNEY (Reuters) - Asian shares fought to sustain the slimmest of recoveries on Friday amid speculation the Federal Reserve might be “one-and-done” with U.S. rate hikes, while oil fell anew as producers bickered over the details of an output cut.

MSCI’s broadest index of Asia-Pacific shares outside Japan nudged up 0.4 percent, though that followed a 1.8 percent drubbing on Thursday. Japan’s Nikkei added 0.8 percent.

Chinese shares, which were up earlier in the day, slipped into negative territory with the blue chips off 0.1 percent. E-Mini futures for the S&P 500 too started firmer but were last down 0.1 percent.

Spreadbetters, however, pointed to a strong start for Europe with London’s FTSE futures up 1.8 percent.

There was no escaping concerns over Sino-U.S. relations after the arrest of smartphone maker Huawei Technologies Co Ltd Chief Financial Officer Meng Wanzhou threatened to chill talks on some form of trade truce.


Markets also face a test from U.S. payrolls data later in the session amid speculation the economy was heading for a tough patch after years of solid growth.

Federal Reserve Chairman Jerome Powell emphasized the strength of the labor market in remarks made late Thursday.

Economists polled by Reuters forecast jobs rose by 200,000 in November after surging 250,000 in October.

“A view has developed of U.S. growth normalizing a little faster than expected from the fiscal ‘sugar rush’, while inflationary pressures remain contained given the sharp fall in the oil price,” said National Australia Bank economist Tapa Strickland.

“Payrolls will be very important in helping to validate whether the economy is indeed slowing faster than expected.”


The mood in risk-asset markets brightened a little after the Wall Street Journal reported Fed officials are considering whether to signal a new wait-and-see mentality after a likely rate increase at their meeting in December.

That only added to recent feverish speculation the central bank was almost done hiking rates given concerns about global growth and the disinflationary impact of collapsing oil prices.

Interest rate futures rallied hard in massive volumes with the market now pricing in less than one hike next year. A month ago they had been wagering on three increases.

The news helped Wall Street pare steep losses and the Dow ended Thursday down 0.32 percent, while the S&P 500 lost 0.15 percent. The Nasdaq managed to advance 0.42 percent.

FLATTENED
Treasuries extended their blistering rally, driving 10-year yields down to a three-month trough at 2.8260 percent, before last trading at 2.89 percent.

Slideshow (2 Images)
Yields on two-year notes fell a huge 10 basis points at one stage on Thursday and were last at 2.76 percent.

Investors also steamrolled the yield curve to its flattest in over a decade, a trend that has historically presaged economic slowdowns and even recessions.

“The sort of flattening of the yield curve that we have seen recently usually indicates that investors think the Fed is nearing the end of a tightening cycle, and that rate cuts may even be on the horizon,” argued analysts at Capital Economics.

The seismic shock spread far and wide. Yields on 10-year paper sank to the lowest in six months in Germany, almost 12 months in Canada and 16 months in Australia.

The sea change in expectations took a toll on the U.S. dollar as bulls had been counting heavily on a steady widening rate differential to propel the currency.

The greenback eased against a basket of currencies to 96.803, and fell to 112.85 yen from a 113.85 high at the start of the week. The euro was up around 0.4 percent on the week so far at $1.1366.


Crptocurrency Bitcoin took a fresh spill to be down almost 18 percent for the week at $3,363.37.

In commodity markets, gold firmed to near a five-month peak as the dollar eased and the threat of higher interest rates waned. Spot gold stood at $1,239 per ounce.

Oil was less favored, however, falling further as OPEC delayed a decision on output cuts while awaiting support from non-OPEC heavyweight Russia.

Asia shares struggle to rally, oil skids further

Reference: Wayne Cole

Thursday, 6 December 2018

Stocks slide as Huawei arrest risks new strains in U.S.-China ties


TOKYO (Reuters) - U.S. stock futures and Asian shares slumped on Thursday after Canadian authorities arrested a top executive of Chinese tech giant Huawei for extradition to the United States, feeding fears of a fresh flare-up in tensions between the two superpowers.

The news came as Washington and Beijing are set to begin negotiations aimed at de-escalating their bruising trade war, which is adding to deepening worries over higher U.S. interest rates and other risks to global growth.

The sell-off looked set to extend into European trading, with spreadbetters expecting London’s FTSE 100 to drop 0.9 percent at the open, Frankfurt’s DAX to lose 1.5 percent and Paris’ CAC 40 to fall 1.4 percent.

S&P500 e-mini futures fell almost 2 percent at one point in thin Asian morning trade and were last were down 1.3 percent.

The losses in the first few minutes of trading might have been even steeper, but CME Group’s Chicago Mercantile Exchange implemented a series of 10-second trading halts that helped limit the initial drop.


Japan’s Nikkei shed 1.9 percent, closing at its lowest level since Oct. 30, with semi-conductor related shares leading the losses. Huawei is one of the world’s largest makers of smartphones and telecommunications network equipment.

MSCI’s ex-Japan Asia-Pacific index lost 2.0 percent. Hong Kong’s Hang Seng dropped 2.9 percent while Shanghai shares dipped 1.7 percent.

Canadian authorities said they had arrested Huawei’s global chief financial officer in Vancouver, where she is facing extradition to the United States.

The arrest is related to violations of U.S. sanctions, a person familiar with the matter said, though officials have so far stayed mum on her allegations.

The arrest heightened the sense of a major collision between the world’s two largest economic powers not just over tariffs but also over technological hegemony.


Britain’s BT Group said it was removing Huawei’s equipment from the core of its existing 3G and 4G mobile operations. Australia and New Zealand have also rejected Huawei’s products.

“The U.S. has been telling its allies not to use Huawei products for security reasons and is likely to continue to put pressure on its allies,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“So while there was a brief moment of optimism after the weekend U.S.-China talks but the reality is, it won’t be that easy,” he said.

Shares of China’s second-largest telecom equipment maker ZTE Corp sank 9.1 percent in Hong Kong and 6.5 percent in Shenzhen.

ZTE had to temporarily halt much of its business earlier this year after the U.S. imposed an export ban on the company related to it illegally shipping U.S.-origin goods to Iran and North Korea.

WORRIES ABOUT SLOWER U.S. GROWTH
Markets had initially brightened this week after U.S. and Chinese leaders agreed a temporary trade truce at a meeting on Saturday. But the mood quickly soured on scepticism that the two sides can reach a substantive deal on a host of hugely divisive issues within the tight 90-day time frame set out.

The benchmark Treasury 10-year yield hit a three-month low of 2.874 percent, its lowest level since Sept. 7, before pulling up to 2.884 percent. U.S. markets were closed on Wednesday to mark the death of former President George H.W. Bush.

Adding to worries about U.S. recession risks, the yield curve remained inverted between two- and five-year zones, with five-year notes yielding 2.763 percent, below 2.778 percent on two-year notes.

“If the upcoming U.S. jobs data on Friday shows some weakness, markets will face a major challenge,” said Shuji Shirota, head of macro economic strategy at HSBC.

The yield inversion is a symptom of a weak economy, said Bryan Whalen, group managing director of TCW in Los Angeles, noting the U.S. economy has not been able to achieve sustainable economic growth of more than 2 percent in recent years.

“If the U.S. couldn’t break the 2 percent growth environment, with zero-bound interest rates and a rapidly expanding balance sheet early in the economic cycle, why would you ever think we could do it when interest rates are rising and balance sheet is shrinking and we are basically 9-10 years into an aging economic cycle,” he said.

World stocks hit by Wall Street, U.S. yield curve double whammy
“It’s hard to envision a scenario where U.S. growth doesn’t dip down, if not kind of going into a recession.”

Oil prices fell ahead of a meeting by producer group OPEC that is expected to result in a supply cut aimed at draining a glut that has pulled down crude prices by 30 percent since October.

A monitoring committee of OPEC and its allies, including Russia, agreed on the need to cut oil output in 2019, two sources familiar with the discussions said.

Still, lack of details could suggest such an agreement could be elusive, some analysts also said.

U.S. West Texas Intermediate (WTI) crude futures fell 1 percent, or 51 cents a barrel, to $52.38 by 0612 GMT. Brent crude oil futures were down 0.8 percent, or 49 cents, at $61.07.

In the currency market, the dollar fell 0.4 percent against the yen to 112.77 yen on a risk-averse mood while the Australian dollar shed 0.6 percent to $0.7229.


The yuan eased 0.3 percent to 6.8835 per dollar in offshore trade while the euro held steady at $1.1338.

Sterling dipped 0.2 percent to $1.2708 as Prime Minister Theresa May’s Brexit deal faced fresh criticism from allies and opponents alike.

Reference: Hideyuki Sano, Daniel Leussink

Dollar falls versus yen as weaker stocks, lower yields shake confidence


TOKYO (Reuters) - The dollar fell against the yen on Thursday as growing investor aversion to riskier assets hit equities and pushed down U.S. Treasury yields.
The U.S. currency dropped 0.4 percent to 112.72 yen , handing back its modest gains made overnight.

Global equity markets have been shaken and the dollar fell this week after an inversion in a part of the U.S. Treasury yield curve triggered market concerns about economic growth.

Adding to the jitters on Thursday was the arrest in Canada of a top executive of Chinese tech giant Huawei Technologies, fanning fears of a flare-up in tensions between China and the United States just as the two sides are supposed to be resuming trade negotiations.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.9 percent and Japan’s Nikkei lost more than 2 percent.

U.S. Treasury yields fell, pressuring the dollar.

U.S. stock futures slip, Asia follows after Canada arrests Huawei CFO

TOKYO (Reuters) - U.S. stock futures and Asian shares tumbled on Thursday after Canadian authorities arrested a top executive of Chinese tech giant Huawei for extradition to the United States, feeding fears of a fresh flare-up in tensions between the two superpowers.

The news came as Washington and Beijing begin three months of negotiations aimed at de-escalating their bruising trade war, which is adding to lingering investor jitters over higher U.S. interest rates and other risks to global economic growth.

S&P500 e-mini futures fell almost 2 percent at one point in thin Asian morning trade and were last were down 1.3 percent.

The losses in the first few minutes of trading might have been even steeper, but CME Group’s Chicago Mercantile Exchange implemented a series of 10-second trading halts that helped limit the initial drop.

Japan’s Nikkei slumped 1.8 percent by the midday break, with semi-conductor related shares leading the losses. Huawei is one of the world’s largest makers of smartphones and telecommunications network equipment.

MSCI’s ex-Japan Asia-Pacific index fell 1.7 percent. Hong Kong’s Hang Seng dropped 2.7 percent while Shanghai shares dipped 1.2 percent.


Canadian authorities said they had arrested Huawei’s global chief financial officer in Vancouver, where she is facing extradition to the United States.

The arrest is related to violations of U.S. sanctions, a person familiar with the matter said, though officials have so far stayed mum on her allegations.

The arrest heightened the sense of a major collision between the world’s two largest economic powers not just over tariffs but also over technological hegemony.

Britain’s BT Group said it was removing Huawei’s equipment from the core of its existing 3G and 4G mobile operations. Australia and New Zealand have also rejected Huawei’s products.

“The U.S. has been telling its allies not to use Huawei products for security reasons and is likely to continue to put pressure on its allies,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“So while there was a brief moment of optimism after the weekend U.S.-China talks but the reality is, it won’t be that easy,” he said.


Hong Kong-listed shares of Chinasoft International Ltd shed as much as 13 percent in response to news of the arrest. Huawei is a key client of Chinasoft.

WORRIES ABOUT SLOWER U.S. GROWTH
Markets had initially brightened after U.S. and Chinese leaders agreed a temporary trade truce at a meeting on Saturday. But the mood has quickly soured on scepticism that the two sides can reach a substantive deal on a host of hugely divisive issues within the tight 90-day time frame set out.

The benchmark Treasury 10-year yield fell 1.8 basis points to 2.903 percent, near Tuesday’s three-month low of 2.885 percent. U.S. markets were closed on Wednesday to mark the death of former President George H.W. Bush.

The yield curve remained inverted between two- and five-year zones, with five-year notes yielding 2.780 percent, below 2.797 percent on two-year notes.

“Worries about a U.S. economic slowdown are deepening as housing and other interest rate-sensitive sectors seem to have been hit,” said Shuji Shirota, head of macro economic strategy at HSBC.

“If the upcoming U.S. jobs data on Friday shows some weakness, markets will face a major challenge,” he added.

World stocks hit by Wall Street, U.S. yield curve double whammy
The inversion is a symptom of a weak economy, said Bryan Whalen, group managing director of TCW in Los Angeles, noting the U.S. economy has not been able to achieve sustainable economic growth of more than two percent in recent years.

“If the U.S. couldn’t break the two percent growth environment, with zero-bound interest rates and a rapidly expanding balance sheet early in the economic cycle, why would you ever think we could do it when interest rates are rising and balance sheet is shrinking and we are basically 9-10 years into an aging economic cycle,” he said.

“It’s hard to envision a scenario where U.S. growth doesn’t dip down, if not kind of going into a recession.”

Oil prices fell slightly in tepid trading ahead of a meeting by producer group OPEC that is expected to result in a supply cut aimed at draining a glut that has pulled down crude prices by 30 percent since October.

A monitoring committee of OPEC and its allies, including Russia, agreed on the need to cut oil output in 2019, two sources familiar with the discussions said.

Still, lack of details could suggest such an agreement could be elusive, some analysts also said.

U.S. West Texas Intermediate (WTI) crude futures were at $52.63 per barrel at 0248 GMT, down 26 cents, or 0.5 percent, from their last close. Brent crude oil futures were down 19 cents, or 0.3 percent, at $61.35 per barrel.

In the currency market, the dollar fell 0.4 percent against the yen to 112.78 yen on a risk-averse mood while the Australian dollar shed 0.6 percent to $0.7227.

The yuan eased 0.2 percent to 6.8770 per dollar in offshore trade while the euro traded flat at $1.1345.

Sterling dipped 0.1 percent to $1.2725 as Prime Minister Theresa May’s Brexit deal faced fresh criticism from allies and opponents alike.

Reference: Reuters