FTSE slides on Brexit, Huawei arrest

Brexit uncertainty formed the backdrop for the FTSE’s 2.6% decline Thursday with the arrest of a top Huawei executive and declining oil prices adding to the mix of negative signals. European gauges fared even worse as the arrest of China’s telecom technology giant’s executive fuelled fears that the US-China trade spat will escalate with sweeping negative effects on companies exporting to China or producing in China for foreign consumers.

For China the Huawei arrest will add insult to injury as the arrested executive, Meng Wangzhou, is not only the company’s CFO but also the Huawei founder’s daughter and the prospective company successor and concerns are growing that the country could retaliate with arrests of US executives.

Although Meng Wangzhou was detained in Canada on suspicions of breaching sanctions against Iran the arrest highlights a different set of tensions between the US and China – the issue of cybersecurity. The US has long suspected Huawei of foul play in cybersecurity and has restricted the sale of its 5G equipment in the US for fears that it might be used for dubious purposes.

Prospect of trade talks in doubt

President Trump and his Chinese counterpart Xi Jinping put the Sino-Chinese trade dispute on a three-month hold during their discussions in Buenos Aires last weekend but the arrest will make it harder to find common ground when discussions restart. They remain apart not only on trade tariffs – a key issue for global markets - but also on the trade imbalance between the US and China, intellectual property theft and restrictions and difficult requirements for US companies operating in China.

Stocks, pound weaker as Brexit concerns grow

In London, domestically focused stocks were under pressure, particularly banks and insurance companies ahead of the crucial Parliament vote next Tuesday. With the likelihood of a supportive vote for the PM Theresa May’s Brexit proposal now very faint, investors are regrouping around a negative outcome. Mining firms bore the brunt of the Huawei arrest, particularly copper producers and trading house Glencore, and copper prices lost nearly 2% on the day.

Oil awaits more clarity from OPEC

A comment from Saudi Arabia’s oil minister about the size of a potential OPEC output cut sent oil prices down a slippery slope as it was substantially below what the market had expected. Brent crude prices fell 5% before regaining some lost ground after the Saudi minister indicated that a 1 million dollar output cut may be sufficient to stabilise prices. OPEC members finished their first day of discussions on output cuts in Vienna but decided to hold off on an announcement until Russia and another nine non-OPEC producers join the talks tomorrow. Both Saudi Arabia and Russia have already agreed to a cut in principle this weekend, what remains to be seen is by how much and over what time frame.

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