Investors are growing increasingly skittish as the stock market rout which began on Tuesday has sunk to new depths with the FTSE falling to its lowest level since December 2016. The most plausible catalyst for this drop is the arrest of a top executive at Chinese firm Huawei in Canada, which has raised serious doubts of any significant thawing in the frosty relationship between the US and China despite the upbeat remarks following the Trump-Xi meeting over the weekend. While the arrest is making the headlines it seems more to be a case of the straw that broke the camel’s back with serious doubts as to the substance of the trade war truce emerging not long after the market’s opened sharply higher on Sunday night.
Differing accounts from both sides on what the agreement actually entailed were the first warning sign and while the US, and Trump in particular, were quick to laud it as a key breakthrough, upon reflection in the cold light of day it appears that not much has actually changed. With US markets closed yesterday due to the remembrance of former president George H.W. Bush, they are set to open sharply lower this afternoon. When US stock futures resumed at midnight, there was a large gap to the downside of around 2% and the move led to the CME implementing measures to prevent even harder falls. This is a pretty obvious sign that exchanges are worried that the declines could rapidly escalate to an all-out panic and should there be another wave of selling this afternoon following the US open then things could quickly turn ugly.
Oil sinks on hints of insufficient OPEC cuts
The drop seen in stock markets is being dwarfed by the fall in crude oil, with the international benchmark Brent falling by 5% as OPEC ministers meet in Vienna to discuss the group’s latest production targets. Expectations for a supply cut are high given that the price of oil has plummeted by over a third in just a little more than 2 months, but the early indications are that the size of the reduction may not be enough to halt the market’s declines. Consensus forecasts see a cut in the 1-1.5m bpd (barrels per day) range but remarks from the Saudi energy minister have thrown cold water on these hopes.
Saudi Arabia are seen as the de facto leader of the group due to their high levels of output which allow the kingdom to act as a swing producer for crude oil, and comments from Al-Falih that there is no agreement yet to cut output and that a 1m bpd reduction would be enough, have seen Oil fall lower. Official confirmation will come later today once the meeting is concluded, but the early signs are that OPEC will proceed with caution and this may not be enough to support crude oil which remains in a deep bear market.