Apple bombshell sparks currency ‘flash crash’ as investors abandon tech stocks

Flagging demand for iPhones in China has heightened investor fears surrounding Apple’s most profitable product amid global economic weakness and a trans-Pacific tariff dispute. (AP)
Updated 04 January 2019
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Apple bombshell sparks currency ‘flash crash’ as investors abandon tech stocks

  • It’s Apple’s first downgrade in nearly 12 years, blaming weaker iPhone sales in China
  • “No one wants to take any risk because none of the uncertainties we are facing have been lifted, whether it’s Brexit, this trade war, or growth”

LONDON: Apple’s rare warning on revenue rocked financial markets on Thursday, as investors sought safety in bonds and less risky assets amid renewed concerns about slowing global economic and corporate growth.

Asian and European shares fell sharply, led by a sell-off in technology stocks, after Apple cut its revenue forecast, its first downgrade in nearly 12 years, blaming weaker iPhone sales in China.

The news also jolted currency markets and German government bond yields held close to their lowest in over two years.

“For the moment, investors have reacted by going into non-risky assets,” said Philippe Waechter, chief economist at Ostrum Asset Management, in Paris.

“No one wants to take any risk because none of the uncertainties we are facing have been lifted, whether it’s Brexit, this trade war, or growth.

“Investors are putting their heads in the sand and waiting,” Waechter said.

Apples shares fell dramatically in after-hours trade and those listed in Frankfurt were down by 8.6 percent in early European deals.

The news sparked a “flash crash” in holiday-thinned currency markets as growing concerns about the health of the global economy, particularly in China, sent investors scurrying into the haven of the Japanese yen, which was poised for its biggest daily rise in 20 months.

Apple’s warning came after data earlier this week showed a deceleration in factory activity in China and the euro zone, indicating the ongoing trade dispute between the US and China was taking a toll on global manufacturing.

Major European bourses were firmly in negative territory by midmorning — Frankfurt’s DAX, with its exposure to Chinese trade and tech-heavy constituents, was the biggest faller and down as much as 1.2 percent, while the CAC40 in Paris dropped by 1.1 percent and London eased by 0.4 percent.

Chipmakers who supply parts to Apple were the worst hit, sending technology stocks to their lowest since February 2017. Overnight, shares in China and Hong Kong see-sawed between gains and losses as investors braced for Beijing to roll out fresh support measures for the cooling Chinese economy.

“Chinese authorities have the luxury of having control not just of the fiscal parts of the government tool case, but also the monetary parts ... and I suspect the Chinese authorities will make use of that,” said Jim McCafferty, head of equity research, Asia ex-Japan, at Nomura.

China’s central bank said late on Wednesday it was adjusting policy to benefit more small firms that are having trouble obtaining financing, in its latest move to ease strains on the private sector.

While more fiscal and monetary policy support had been expected in coming months on top of modest measures last year, some analysts wonder if more forceful stimulus will be needed.

Currency markets saw a wild spike in volatility in early Asian trade, with the yen moving sharply higher against the US dollar, triggering stop-loss sales of US and Australian dollars.

The dollar was last 1 percent weaker against the yen at 107.77, having earlier fallen as low as 104.96, its lowest level since March 2018. The Australian dollar at one point hit levels against the Japanese yen not seen since 2011.


World leaders prepare for Davos amid gloomy forecasts

Klaus Schwab, founder and executive chairman of the World Economic Forum. (AFP)
Updated 13 min 42 sec ago
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World leaders prepare for Davos amid gloomy forecasts

  • Delegates to annual forum to include presidents of Iraq and Afghanistan

DUBAI: World leaders are preparing to head to the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, amid the riskiest global backdrop in years, according to a report from the event organizer itself.

As the WEF announced the names of some of the 3,000 participants set to attend the meeting and details of the four-day agenda, it also published a gloomy outlook on international politics, economics, the environment and technology. 

Rising geopolitical and geo-economic tensions are the most urgent risks in 2019, with 90 percent of experts surveyed expecting further economic confrontation between major powers, according to the WEF’s annual Global Risks Report.

“The world’s ability to foster collective action in the face of urgent major crises has reached crisis levels, with worsening international relations hindering action across a growing array of serious challenges. Meanwhile, a darkening economic outlook, in part caused by geopolitical tensions, looks set to further reduce the potential for international cooperation in 2019,” it added.

Although political and economic worries were top of the immediate agenda for the 1,000 experts polled by the WEF, the environment and climate change are also a cause for concern, as are “rapidly evolving” cyber and technological threats, the WEF said.

Børge Brende, the WEF president, said: “With global trade and economic growth at risk in 2019, there is a more urgent need than ever to renew the architecture of international cooperation. We simply do not have the gunpowder to deal with the kind of slowdown that current dynamics might lead us toward. What we need now is coordinated, concerted action to sustain growth and to tackle the grave threats facing our world today.”

The leaders who will begin to arrive in Switzerland in the next week include Shinzo Abe, prime minister of Japan; Jair Bolsonaro, president of Brazil; Angela Merkel, chancellor of Germany; and Wang Qishan, vice president of China.

With US President Donald Trump pulling out of the meeting to deal with the partial government shutdown, the American delegation is expected to be led by Steven Mnuchin, Treasury secretary, and Mike Pompeo, secretary of state.

The Middle East is well represented at the meeting, with at least nine heads of state or government from the region, including Palestine, Iraq, Egypt, Jordan and Lebanon. Saudi Arabia will be represented by a team of senior policymakers and business leaders.

The risk report will give them all food for thought in the Alpine resort.

Asking whether the world is “sleepwalking into a crisis,” the report responded: “Global risks are intensifying but the collective will to tackle them appears to be lacking. Instead, divisions are hardening. The world’s move into a new phase of strongly state-centered politics continued throughout 2018.

“The idea of ‘taking back control’ — whether domestically from political rivals or externally from multilateral or supranational organizations — resonates across many countries and many issues.”

Macro-economic risks have moved into sharper focus, it said. 

“Financial market volatility increased and the headwinds facing the global economy intensified. The rate of global growth appears to have peaked,” the report said, pointing to a slowdown in growth forecasts for China as well as high levels of global debt — at 225 percent of global gross domestic product (GDP), significantly higher than before the financial crisis 10 years ago.

Raising the prospect of a “climate catastrophe,” the report said extreme weather, which many experts attribute to rapid climate change, was a risk of great concern. “The results of climate inaction are becoming increasingly clear,’ the WEF said.

Of the 3,000 participants at Davos, which runs from Jan. 22 to 25, around 78 percent are men, with an average age of 54. 

The oldest will be the 92-year-old British broadcaster David Attenborough, the youngest 16-year-old South African wildlife photographer Skye Meaker.