Stocks Fall as Arrest of Huawei Executive Stokes Fresh U.S.-China Confrontation

U.S. stocks fell anew Thursday after it came to light that a senior Chinese business executive was apprehended in Canada over possible U.S. sanctions violation, intensifying the trade impasse between Washington and Beijing. The United States last week became a net oil exporter for the first time in 75 years, highlighting the significance of the decade-long shale boom.

Stocks Pare Losses

After languishing heavily for much of the day, U.S. stocks managed to pare most of their losses in the final hour of trading. The Dow Jones Industrial Average fell 78.05 points, or 0.3%, to 24,947.67. The blue-chip index was down more than 500 points earlier in the day. By the close, it had extended its two-day slide to nearly 900 points.

The much broader S&P 500 Index also pared its losses, falling 0.2% to close at 2,695.95. Seven of 11 primary sectors finished in the red, with energy, materials and financials leading the market lower.

Meanwhile, the technology-heavy Nasdaq Composite index reversed course to finish slightly higher, adding 0.4% to 7,188.26.

The CBOE VIX, also known as the fear index, rose to its highest level in over a month, offering a bleak picture of the holiday-shortened season. VIX touched a session high of 25.94 on a scale of 1-100 where 20 represents the historic average. It would eventually settle 2% higher at 21.15.

Huawei Arrest Raises Risk of U.S.-China Standoff

A senior executive of Chinese telecommunications giant Huawei has been arrested in Canada and faces extradition to the United States on suspicion of sanctions violation. The arrest comes less than a week after the U.S. and China agreed to suspend their trade war for 90 days in pursuit of a more comprehensive deal.

Meng Wanzhou, Huawei’s chief financial officer, was apprehended on Dec.1 following a lengthy investigation by the U.S. Justice Department. Although the company has been given very little information on the detention, Huawei has been under federal probe for its business dealings with Iran. This puts it in direct violation of U.S. sanctions against the Islamic Republic.

“The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng,” a Huawei spokesperson said, according to CNN. “The company believes the Canadian and US legal systems will ultimately reach a just conclusion. Huawei complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, US and EU.”

China’s Foreign Ministry has called on Meng to be released and has asked the U.S. and Canada to explain why she was arrested.

U.S. Becomes a Net Oil Exporter

For the first time in 75 years, the United States has become a net exporter of oil, signaling the start of a profound shift in the global energy balance. According to Bloomberg, the shift from net importer to net exporter occurred last week and followed years of unprecedented growth in domestic shale production. U.S. crude shipments rose to 3.2 million barrels last week, the highest on record.

The news came just as the Organization of the Petroleum Exporting Countries (OPEC) was planning to announce a new round of production cuts. The 15-member cartel will likely lower output by at least 1 million barrels per day beginning in January, though the exact amount is still pending confirmation from Russia, OPEC’s major ally.

As we’ve seen before, tapering crude output provides only temporary reprieve against America’s oil resurgence, where low-cost shale producers have managed to maintain profitability in the face of falling prices. A supply cut that brings U.S. oil prices back above $60 a barrel will invite shale producers to ramp up production in the short run. This plays into the hands of President Trump’s stated goal of attaining “energy independence.”

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi