The FTSE 100 plunged to a two-year low today as US-China trade war tensions weighed on European stocks.
London’s main index fell by as much as 2.5 per cent this morning as blue-chip companies were burnt by fears that China and the US trade war could intensify after a key Huawei executive was arrested overnight.
CFO Meng Wanzhou was arrested in Canada in an extradition deal with the US on suspicion of breaching US sanctions on Iran as well as cyber espionage.
The news knocked more than 173 points off the market to leave the index at 6,748 points, its lowest since December 2016.
Melrose was the biggest faller, dropping by almost eight per cent a week after reports that the engineering group received low-ball bids for its GKN unit.
A similar story played out across Europe, with France’s Cac down 2.34 per cent, Germany’s Dax down 2.38 per cent and the EuroStoxx having fallen 2.2 per cent.
Meanwhile Asian stocks fell this morning on the news, with MSCI’s index of Asian shares excluding Japan down 2.22 per cent, Japan’s Nikkei 225 down 1.91 per cent, the Shanghai composite index down 1.68 per cent and Hong Kong’s Hang Sen down 2.68 per cent.
Chris Beauchamp, chief market analyst at IG, described the drop as a “waterfall”.
“Investors are fretting that the arrest of a Chinese executive in Canada threatens to undo what little good work came out of the G20 meeting at the weekend, and that Beijing will respond with an escalation of trade tensions,” Beauchamp said.
“Already worried about the economic effects of trade wars, investors are now concerned that this will move beyond the realms of tariffs and into much broader economic and diplomatic conflict, with dire implications for global economic growth.”
Meanwhile selling has grown more aggressive in the oil market too, with prices down four per cent ahead to below $59 per barrel as traders don’t expect Opec to cut output by enough to ease fears about an oversupply.
Russ Mould, AJ Bell investment director, pointed out that the FTSE 100 is now below the 6,930 level it reached before the dotcom bubble burst.
“This means investors are now left to decide whether this is a chance to buy on what is now becoming a big dip in the UK’s premier index,” he added, with the index far off its May peak of 7,877.
“The question is whether value is emerging from the UK stock market,” Mould said.
IG predicts the US Dow will fall 450 points to open at 24,577 later today.