Dow dives nearly 500 points before rallying

(Jamie Squire / Getty Images)
  • US stocks briefly erased 2018 gains overnight, as the Dow initially fell by 500 points.
  • It followed the arrest of Huawei’s CFO in Canada, which sparked a round of volatility on global markets as European stocks slumped over 3%.

Wall Street briefly wiped out gains for the year Thursday amid concerns about a cocktail of factors including trade tensions, Treasury yields, and energy prices weighed on global markets.

It followed the worst day for US equities in seven weeks on Tuesday, before markets were closed on Wednesday.

But in the last two hours of trade, US stocks staged a comeback which saw the Dow close 0.3% lower, after earlier falling by almost 2%. The S&P500 finished down 0.17% while the NASDAQ rallied back into positive territory.

Yesterday in Asian trade, selling pressure on futures was so strong in the first six minutes of trading that the CME Group Inc. was forced to intervene with market pauses to prevent severe price movements.

Wall Street had suffered its worst day since October on Tuesday as expectations for a trade deal between Washington and Beijing unwound and after sections of the yield curve inverted. The stock market was closed Wednesday, a national day of mourning for former President George H.W. Bush who died over the weekend.

Canadian authorities said they arrested Meng Wanzhou, the chief financial officer of the Chinese cellular giant Huawei Technologies, on charges related to alleged Iran sanctions violations. The December 1 arrest cast doubt on trade relations between Washington and Beijing, who agreed over the weekend to pause tariff escalations for negotiations.

Optimism around the trade-war ceasefire has since waned after President Donald Trump called himself “a Tariff Man” in a tweet about Beijing, cementing expectations for further trade escalations between the largest economies if a deal isn’t reached within the next three months.

“The market’s in repair mode following one of the worst equity selloffs of the year,” Mark McCormick, a strategist at TD Securities, said in an email.

“There are many moving parts to the puzzle and yet Tariff Man’s tweet looms large. It also wreaks of a classic ‘buy the rumour, sell the fact’ trade where the market priced in a bulk of the good news weeks ago.”

Treasury yields continued to slide Thursday, with the 10-year down 6.3 basis points to 2.86% and the 2-year 8.6 basis points lower at 2.725%. Spreads between some long- and short-term bonds inverted this week, an occurrence seen as a potential recession signal, for the first time since the financial crisis. The dollar slipped 0.4% against the Japanese yen.

Oil prices slipped further into a bear market after OPEC reportedly reached an agreement to slash coordinated output levels by less than expected. West Texas Intermediate dropped 3.3% to around $US51 per barrel, and Brent fell to just below $US60.

Adding to concerns, the lens maker Largan Precision said its November revenue declined by more than a quarter from the same period a year earlier. Shares of Apple suppliers – including Lumentum (-2.8%), Micron (-2.9%) and Texas Instruments (-2%) – tumbled after the results.

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