Dow Drops 800 Points Due to Oil Price Tensions

December 06, 2018 AtoZ MarketsUS stocks are eyeing a sharp decline at the start of trading on Thursday as investors react to the arrest of a top Chinese tech executive and monitor a key OPEC meeting amid a continuing collapse in oil prices.

Investors hoping for stability after the Dow Jones Industrial Average's nearly 800-point fall on Tuesday, are instead facing a blue-chip average that is down another 400 points in pre-market trading.

Reasons for US Securities Drop

A sharp decline in oil prices added to US stock market on Thursday. US crude futures for January end fell 2.6 percent to $51.51 per barrel after the Saudi energy minister proposed a production cut that was less than expected. 

The New York Stock Exchange, Nasdaq and U.S. Treasury market were closed Wednesday as the US remembered former president George Bush. On Tuesday, the DJIA shed nearly 800 points in its largest decline since 10th October.

On Monday, the yield for the three-year Treasury note surpassed its five-year counterpart. That bond-market which is known as a yield-curve inversion is seen as a recession signal. But typically, the recession doesn’t come until years after and many traders won’t see the inversion as official until the 2 years yield rises above the 10 years yield period.

Moreover, the bearish market which began earlier this week amid a signal from the bond market that a possible economic slowdown is coming and rising doubt about the outcome of this past weekend's trade war between the US and China which looks set to continue today.

The arrest of the CFO at Huawei, China's largest telecommunications equipment maker has raised fears that it will harm the tentative trade between the world's two largest economies.

Jasper Lawler, head of research at London Capital Group quoted that:

"Traders have quickly moved out of riskier assets reflecting nerves that the arrest is likely to escalate tensions between the US and China once again." 

Wall Street is closely watching and OPEC oil meeting which is going to held today. The union is considering a significant cut in daily production to help stabilize the oil prices which have fallen sharply in recent weeks.

Global Market Overview

Asian stock market closed down. Japan's Nikkei 225 index was 1.91% down while the Hang Seng closed 1.19% in red. Also, China's Shanghai Composite settled down 1.68%.

European markets were also traded in red. Britain's FTSE 100 index was 2.58% lower while France's CAC 40 index was off 2.40% and Germany's DAX Index was 2.55% in negative.

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