Arrest Shakes Markets

The G20 summit a week ago had eased trade-war concerns but the arrest of a Chinese business woman under US sanctions-violation charges sent markets into reverse as Beijing reacts with fury.

Dec 10, 2018
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Just when it seemed that a reconciliation of the trade dispute between the US and China seemed likely, President Trump's administration asked Canada to arrest a senior Chinese executive. The arrest at Vancouver airport (ahead of extradition to the US) of Meng Wanzhou has been denounced furiously in Beijing. Markets reacted swiftly to the arrest amid fears that it will lead to an escalation of the trade war.

Ms Wanzhou is the daughter of Ren Zhengfei, the founder of the Huawei telecoms group, and the company's chief financial officer. The charges have not been confirmed but are believed to involve the sales of US-made components to Iran, in violation of sanctions against the country.

No one believes, however, that the US would make such a provocative move unless it was meant to send a broader message. As the Financial Times said on Saturday, the arrest is part of a wider international crackdown on the Shenzhen-based group, one of China's biggest and most secretive companies, and is a growing cause for concern in western capitals. The issues were aired at a Senate intelligence committee hearing in February, and were made more timely when Huawei agreed last week to a series of technical changes demanded by the UK's National Cyber Security Centre. These alterations to Huawei's practices will cost the Chinese company an estimated US$2 billion.

Markets, and metals prices, rose sharply after the apparently successful trade discussions at the G20 meeting a week ago but fell back on Ms Wanzhou's arrest. Wall Street remained weak after reopening following the closure on Wednesday for the funeral of George HW Bush, the 41st US President.

On Friday, an announcement that US jobs growth was weaker than expected last month raised concern over the Federal Reserve's ability to reduce interest rates. The jobs slowdown was blamed by analysts partly on a tight labour market. The Dow Jones index and S&P 500 both tumbled 2.3%, while the Nasdaq fell more than 3% on the day. These falls left all three indexes down more than 4% for the week.

Metals prices were surprisingly robust, with all the major metals, except nickel and copper, closing the week higher overall. Zinc was the stand-out performer, rising 5.8% over the week to close on Friday in London at US$2,637/t. Iron ore (62% Fe) was up 2.3% at US$67.0/t, with aluminium up 1.8% at US$1,974/t and gold up 1.3% at US$1,243/oz. Copper slipped 0.3% to US$6,156/t and nickel was 0.1% lower at US$10,975/t.

After two days of fractious talks in Vienna, Opec and its oil-producing allies agreed on Friday to cut crude oil production by 1.2 Mbbl/d, sending Brent Crude prices 5% higher to almost US$62/bbl. The Opec decision came despite requests from President Trump to keep oil prices low. The cuts are due to start in January and last six months, and come after a 30% slide in prices since October.

In addition to the UK, and its Brexit-induced chaos, two other European countries were centre stage last week; France and Germany. Paris has been ravaged by its worst protests in 50 years as the gilets jaunes (yellow vest) movement spread from a riot against fuel taxes to a wide assault on the Macron presidency. In Germany, the country's Chancellor, Angela Merkel, gave an emotional farewell speech to her ruling Christian Democrats as she stepped down on Friday as party leader, being replaced by Annegret Kramp-Karrenbauer. Despite quitting as party leader, Ms Merkel plans to remain German chancellor until her term ends in 2021.

As noted in last week's Picks and Blasts blog, 'An Uncertain World', the UK government suffered a humiliating defeat after Theresa May's administration became the first in history to be held in contempt by parliament. The Prime Minister was forced to publish the legal advice that she had received about the Brexit 'divorce' deal with the European Union. This advice is traditionally confidential, but such is the prevailing frenzy that parliament wanted to see more than the traditional summary.

It is almost as chaotic in South Africa, which last week suffered a series of scheduled power blackouts as the state electricity utility, Eskon, took measures to prevent a collapse of the national grid. The strain is reported to be due to a series of breakdowns in generating units, exacerbated by coal shortages.

On the corporate scene, Aristotelis Mistakidis, Glencore's billionaire copper executive, will quit the company by the end of the year. His departure is part of a broader reshuffle at the top of the Switzerland-based trading house as it deals with the fallout of a US Department of Justice probe (announced in July) of its activities in Nigeria, Venezuela and the Democratic Republic of Congo. 

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.

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