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Arrest Of Huawei CFO Adds To Skepticism About Trade Deal

(RTTNews) - The major U.S. index futures are pointing to a sharply lower opening on Thursday, with stocks likely to extend the sharp pullback seen on Tuesday.

Continue skepticism about the potential for a long-term trade agreement between the U.S. and China is likely to weigh on the markets after the arrest of a top executive at Chinese tech giant Huawei.

Huawei CFO Meng Wanzhou was arrested in Canada on suspicion of violating U.S. trade sanctions against Iran and faces possible extradition to the U.S.

The development has added to uncertainty about whether the 90-day trade truce negotiated by President Donald Trump and Chinese President Xi Jinping will give the two sides enough time to reach a long-term deal.

Traders will also be reacting to a slew of U.S. economic data, as several reports originally due to be released on Wednesday were postponed for former President George H.W. Bush's funeral.

Following the rally seen on Monday, stocks showed a substantial move back to the downside during trading on Tuesday. The major averages moved sharply lower over the course of the session, more than offsetting Monday's strong gains.

The major averages ended the session just off their worst levels of the day. The Dow plunged 799.36 points or 3.1 percent to 25,027.07, the Nasdaq tumbled 283.09 points or 3.8 percent to 7,158.43 and the S&P 500 slumped 90.31 points or 3.2 percent to 2,700.06.

The sharp pullback on Wall Street came as the yield on two-year notes rose above the yield on five-year notes, which is seen as an indicator of an upcoming economic slowdown.

Profit taking also contributed to the sell-off following the strong gains posted on Monday in reaction to the trade war truce reached by President Donald Trump and Chinese President Xi Jinping.

Uncertainty about whether the 90-day truce will give the U.S. and China enough time to reach a long-term trade agreement inspired traders to cash in on yesterday's strong upward move.

News that U.S. Trade Representative Robert Lighthizer, one of Trump's more hawkish advisors on trade with China, has been tapped to lead the negotiations added to the skepticism.

Trump has appeared optimistic about the potential for an agreement, claiming U.S. relations with China have taken a "big lead forward" as a result of his meeting with XI.

"Very good things will happen," Trump said in a post on Twitter. "We are dealing from great strength, but China likewise has much to gain if and when a deal is completed. Level the field!"

"President Xi and I have a very strong and personal relationship," he added. "He and I are the only two people that can bring about massive and very positive change, on trade and far beyond, between our two great Nations."

Financial stocks showed a substantial move to the downside amid the inversion of the yield curve, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index plummeting by 4.9 percent and 4.1 percent, respectively.

Significant weakness also emerged among oil service stocks, as reflected by the 4.8 percent nosedive by the Philadelphia Oil Service Index. The index tumbled to its lowest closing level in over fourteen years.

Semiconductor, housing, computer hardware, and transportation stocks also saw considerable weakness, moving sharply lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are tumbling $1.58 to $51.31 a barrel after falling $0.36 to $52.89 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,243.40, up $0.80 compared to the previous session's close of $1,242.60. On Wednesday, gold slid $4.20.

On the currency front, the U.S. dollar is trading at 112.70 yen compared to the 113.19 yen it fetched on Wednesday. Against the euro, the dollar is valued at $1.1360 compared to yesterday's $1.1344.

Asia

Asian stocks fell across the board on Thursday as the arrest of a senior Huawei executive over potential violation of U.S. sanctions on Iran raised more questions about the Trump administration's overall China strategy.

The recent drop in U.S. 10-year Treasury yields, Brexit-related uncertainty and caution ahead of a crucial OPEC meeting also weighed on the markets.

China's Shanghai Composite Index tumbled 44.62 points or 1.7 percent to 2,605.18, as the arrest of Huawei CFO Meng Wanzhou dealt a blow to hopes of easing of U.S.-China trade tensions. Hong Kong's Hang Seng Index plunged 663.30 points or 2.5 percent 26,156.38.

Japanese shares slumped to a more than five-week low, with chip-related stocks coming under heavy selling pressure.

The Nikkei 225 Index plummeted 417.71 points or 1.9 percent to 21,501.62, the lowest level since October 30th. The broader Topix Index closed 1.8 percent lower at 1,610.60.

Tech stocks led the declines on concerns that they might be hurt seriously in light of security concerns over Huawei. Tokyo Electron, Advantest and Sumco Corp. lost 5-7 percent.

Index heavyweight SoftBank Group nosedived 4.9 percent on news of a mobile service disruption across central Japan. Mobile phone parts maker TDK Corp slumped 6.6 percent and Anritsu Corp shed 7.4 percent.

In economic news, Bank of Japan Governor Haruhiko Kuroda told parliament that economic risks from abroad could be severe and the central bank would respond appropriately as needed.

Australian markets ended modestly lower to extend losses for a third straight session on trade and growth worries. The benchmark S&P/ASX 200 Index dipped 10.70 points or 0.2 percent to 5,657.70 after declining 0.8 percent in the previous session. The broader All Ordinaries Index ended down 12.40 points or 0.2 percent at 5,736.70.

Banks ANZ and NAB lost 1-2 percent on concerns over the inversion in the yield curve. Weak base metals prices on global growth concerns pulled down miners, with BHP, Fortescue Metals Group and Rio Tinto ending down 1-2 percent.

Energy stocks also ended broadly lower as oil prices dipped ahead of an OPEC meeting to discuss cutting output.

Australia posted a seasonally adjusted merchandise trade surplus of A$2.316 billion in October, official data showed, down 21 percent from the previous month. That was shy of expectations for a surplus of A$3.0 billion.

Another report revealed that the value of retail sales in Australia rose a seasonally adjusted 0.3 percent sequentially in October, matching expectations.

Europe

European stocks have fallen sharply on Thursday, as the arrest of the chief financial officer of Huawei sparked worries that trade tensions between the U.S and China will not be resolved anytime soon.

China urged Canada to release Meng Wanzhou and said it firmly opposes and strongly protests such kind of actions, which the country claimed seriously harm the human rights of the victim.

Investors also watched fresh developments on the Brexit front, with the European Court of Justice saying it would deliver a ruling on Monday on whether the U.K. can cancel Brexit unilaterally by reversing Article 50.

Members of parliament are set to vote on whether to pass Prime Minister Theresa May's Brexit deal on December 11th.

While the German DAX Index has plunged by 2.5 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index are down by 2.4 percent and 2.3 percent, respectively.

Chipmakers are losing ground, with Huawei supplier STMicroelectronics post a notable loss. Energy stocks have also come under pressure ahead of the OPEC meeting.

Miners Anglo American, Antofagasta and Glencore have also slumped amid heightened fears of an economic slowdown.

British packaging company DS Smith has tumbled after it unveiled plans to sell its plastics division. Capgemini has also plummeted in Paris after its board decided to co-opt Laura Desmond as a new director.

Aerospace equipment maker Latecoere is also posting a steep loss after cutting its 2019 earnings outlook.

In economic news, German manufacturing orders increased for a third straight month in October, defying expectations for a decline, preliminary data showed.

Factory orders grew 0.3 percent from September, while economists had forecast a 0.4 percent drop. September's 0.3 percent gain was revised to a 0.1 percent increase.

U.S. Economic Reports

Private sector employment in the U.S. increased by less than expected in the month of November, according to a report released by payroll processor ADP.

ADP said private sector employment climbed by 179,000 jobs in November after jumping by a downwardly revised 225,000 jobs in October.

Economists had expected an increase of about 195,000 jobs compared to the addition of 227,000 jobs originally reported for the previous month.

A separate report from the Labor Department showed first-time claims for U.S. unemployment benefits edged down by less than expected in the week ended December 1st.

The report said initial jobless claims slipped to 231,000, a decrease of 4,000 from the previous week's revised level of 235,000. Economists had expected jobless claims to dip to 225,000.

The Commerce Department also released a report showing the U.S. trade deficit widened by more than anticipated in the month of October.

The report said the trade deficit widened to $55.5 billion in October from a revised $54.6 billion in September.

Economists had expected the trade deficit to widen to $55.0 billion from the $54.0 billion originally reported for the previous month.

Meanwhile, revised data released by the Labor Department showed labor productivity in the U.S. increased by slightly more than initially estimated in the third quarter. The report also said unit labor costs rebounded by less than previously estimated.

The Labor Department said productivity surged up by 2.3 percent in the third quarter compared to the previously reported 2.2 percent spike. The upward revision to the pace of productivity growth matched economist estimates.

Meanwhile, the report said unit labor costs climbed by 0.9 percent in third quarter compared to the 1.2 percent jump previously reported. Economists had expected the increase in unit labor costs to be downwardly revised to 1.1 percent.

At 10 am ET, the Institute for Supply Management is scheduled to release its report on activity in the service sector in the month of November.

The ISM's non-manufacturing index is expected to dip to 59.2 in November after pulling back to 60.3 in October, although a reading above 50 would still indicate service sector growth.

The Commerce Department is also due to release its report on new orders for manufactured goods in the month of October at 10 am ET. Factory orders are expected to edge down by 0.2 percent.

At 11 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended November 30th.

Crude oil inventories are expected to drop by 942,000 barrels after rising by 3.6 million barrels in the previous week.

The Treasury Department is also due to announce the details of next week's auctions of three-year and ten-year notes and thirty-year bonds at 11 am ET.

At 12:15 pm ET, Atlanta Federal Reserve President Raphael Bostic is scheduled to deliver a speech on the U.S. economic outlook at the Georgia Economic Outlook in Atlanta, Georgia.

New York Fed President John Williams is due to speak in a moderated discussion with Mervyn King at a London School of Economics Foundation event in New York at 6:30 pm ET.

At 6:45 pm ET, Fed Chairman Jerome Powell is scheduled to deliver welcoming remarks at the Housing Assistance Council's Rural Housing Conference in Washington, D.C.

Stocks In Focus

Shares of Thor Industries (THO) are moving significantly lower in pre-market trading after the recreational vehicle maker reported fiscal first quarter results that came in below analyst estimates.

Social media giant Facebook (FB) may also move to the downside after Stifel Nicolaus downgraded its rating on the company's stock to Hold from Buy.

Shares of Macy's (M) may also come under pressure after Atlantic Equities downgraded its rating on the department store operator's stock to Underweight from Neutral.

On the other hand, shares of Cloudera (CLDR) are likely to see initial strength after the software company reported a narrower than expected fiscal third quarter loss on revenues that exceeded estimates.
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