Local Business Reporter and columnist, writes about entrepreneurs and businesses in the Washington Metropolitan Area
Thomas Heath Local Business Reporter and columnist, writes about entrepreneurs and businesses in the Washington Metropolitan Area December 6 at…
Following a reprieve for a National Sorrow Day, US stock markets on Thursday extended an overall routing triggered indicating that the prospects for trade agreements between the US and China were in danger.
Investor attacks were driven by the arrest of a Chinese executive who further threatened trade progress, coupled with a downturn in the bond market and a sharp drop in oil prices.
When trading opened, Dow Jones’s industry average fell for more than 450 points, or 1.8 percent. The tech-heavy Nasdaq was down 1.9 percent, pushing deeper into the correction area. Correction is a drop of at least 10 percent from the high. Standard & Poor’s 500 stock index was 1.7 percent.
Dow and S & P 500 have both released all winnings for the year – and have their worst quarter in seven years. The energy and technology sectors were the main attraction of S & P when trading opened.
The Organization for Oil-Porting Countries begins an important meeting on Thursday in Vienna, hoping to reach a production cut of 1 million barrels a day.  Oil prices drop 30 percent in the fourth quarter of overproduction over world producers.
Prices are dropping further Thursday for fear that Saudi Arabia will not reduce production enough to stabilize prices. Something that is barely 1 million barrels per day would probably be a disappointment for the producers.
The three major oil producers are now the United States, Russia and Saudi Arabia. Saudi Arabia and non-OPEC Russia are the key to reducing production.
International benchmark Brent crude oil fell 2.1 percent overnight to $ 60.28 per barrel. US West Texas Intermediate Crude decreased 2.3 percent to $ 51.66. Experts believe that $ 50 is an important threshold because many producers can not make a profit if prices drop a lot below that number.
Mixed signals about the status of the US-China trade agreement after the 20th Buenos Aires Summit were released to a calamitous Tuesday on Wall Street, with Dow bouncing 800 points, or 3 percent. President Trump and Chinese Ministry of Commerce spoke with their successful negotiations, but Trump’s allegations of tariff reductions and Beijing buy more US agriculture and natural gas have not been backed up by their own administration or the Chinese government.
“Trump administration claims that there would be short-term pain associated with the rates to correct the errors that now seem to be more of a long-term draw on investors and business confidence,” said Chris Rupkey, CFO of MUFG Union Bank in a note to investors Thursday morning. “The odds of recession over the next two years have risen dramatically, and if it happens, it will be the Trump recession.”
US financial markets closed on Wednesday for the state funeral of President George HW Bush.  On Wednesday, the Chief Financial Officer of Chinese Tech Juggernaut Huawei, Meng Wanzhou, was arrested in Canada and now for extradition to the United States. While the Canadian Government refused to share their allegations, the Wall Street Journal reported in April that Wanzhou was investigated for possible violations of US sanctions against Iran. Wanzhou is already arrested for it already fragile detention between the US and China before another 90 days of trade negotiations.
News of Wanzhou arrested saw additional fear of Asian markets on Thursday. Hong Kong’s Hang Seng Index dropped 2.7 percent and the Shanghai Composite Index dropped 1.7 percent, and Japan’s reference Nikkei tumbled 2.3 percent.
Jitters spread to European markets, with the UK’s FTSE 100 Index falling more than 2.5 percent and Germany’s DAX index fell even worse, down more than 2.8 percent. In France, CAC fell almost 2.8 percent.
Investors were also haunted by something that has not happened within a decade: the inversion of the return curve. The interest rate on 5- and 10-year US government bonds is usually higher than the rates paid for bonds of 3 years or less. Investors who borrow US government money for a long time tend to have a higher interest rate to take that extra risk. But on Monday, and again shortly tomorrow, the 3-year bond yielded more than 5-year bonds, an unusual event that Wall Street sees with concern.
Inverted yield curves usually mean that a recession will come, even if not immediately.
“Although an inverted return curve is a good indicator of problems, it has never been a good sign of immediate problems,” said Brad McMillan, Head of Investments in the Commonwealth Financial Network. “It has typically been a two-year delay or more between the initial inversion and the actual recession. “
Investors are paying close attention when the 3-month return climbed over the 10-year bond yield. It has not happened yet, but is typically a clearer indicator of a coming recession than has happened so far. Investors still invest in this week’s events as a more confirmation that the US economy is likely to have peaked and will slow down from here.