After a reprieve for a national day of mourning, U.S. stock markets on Thursday extended an across-the-board rout triggered by signs that the prospect of a U.S.-China trade deal was in jeopardy.
Investor angst was fueled by the arrest of a Chinese executive that further threatened progress on trade, coupled with omens of a recession in the bond market and a steep drop in oil prices.
As trading opened, the Dow Jones industrial average fell more than 450 points, or 1.8 percent. The tech-heavy Nasdaq was down 1.9 percent, pushing deeper into correction territory. Correction is a drop of at least 10 percent from the high. The Standard & Poor’s 500-stock index was off 1.7 percent.
The Dow and S&P 500 have both given up all gains for the year.
Mixed signals about the status of the trade deal between the U.S. and China following the Group of 20 Summit in Buenos Aires unleashed to a calamitous Tuesday on Wall Street, with the Dow plunging 800 points, or 3 percent. President Trump and the Chinese Commerce ministry touted their successful negotiations, but Trump’s claims about tariff reductions and Beijing buying more U.S. agriculture and natural gas weren’t backed up by his own administration or the Chinese government.
U.S. financial markets were closed Wednesday for the state funeral of President George H.W. Bush.
On Wednesday, chief financial officer of Chinese tech juggernaut Huawei, Meng Wanzhou was arrested in Canada and now faces extradition to the United States. While the Canadian government declined to share the details of her arrest, the Wall Street Journal reported in April that Wanzhou was under investigation for possible violations of U.S. sanctions against Iran. Wanzhou’s arrest bodes poorly for the already fragile detente between the U.S. and China ahead of another 90 days of trade negotiations.
News of Wanzhou’s arrest sowed further fears into Asian markets. Hong Kong’s Hang Seng index sank 2.7 percent and The Shanghai Composite index fell 1.7 percent and Japan’s benchmark Nikkei tumbled 2.3 percent.
On Wall Street, many investors were spooked by signs of a flattening yield curve, which could signal the beginnings of a recession. Earlier this week, the gap between the 10-year Treasury yield and the 2-year thinned to 13 points. If the 2-year yield supersedes the 10-year, it might spell the end of the the bullish U.S. economy.
Threats of oil production cuts from Saudi Arabia’s energy minister contributed to further unrest as OPEC continued to negotiate production levels in Vienna. Oil prices fell 5 percent.