Global stocks, oil prices slip as rising COVID cases prompt Chinese lockdowns
Global stocks and oil prices slipped on Monday as a spike in COVID-19 cases and newly recorded deaths in China prompted authorities in the world’s second-largest economy to reinstate lockdowns.
Beijing’s most populous district urged residents to stay at home on Monday as the city’s COVID-19 case numbers rose, while at least one district in Guangzhou was locked down for five days.
“It looked like zero COVID-19 was moving in the right direction and everyone was excited but the Chinese government is taking some strong action and in the short term there’s going to be fits and starts,” said Thomas Hayes, chairman of Great Hill Capital in New York.
MSCI’s broadest index of world shares fell 0.91%, while European stocks were down 0.8%.
On Wall Street, all three major indexes were trading lower, led by a selloff in technology, energy and consumer discretionary stocks.
The Dow Jones Industrial Average fell 0.24% to 33,664.66, the S&P 500 lost 0.49% to 3,945.76 and the Nasdaq Composite dropped 0.83% to 11,053.73.
Oil prices dropped to their lowest level since early January on concerns of lower Chinese fuel demand owing to the COVID-19 lockdowns as well as reports that Saudi Arabia and other OPEC members are holding talks on a potential output increase.
Europe is scrambling to wean itself off Russian supplies and build up reserves before the cold winter months, but investors reckon the hit to its economy will be huge.
Russia scrapped a Saturday deadline for flows down the Nord Stream pipeline to resume, citing an oil leak in a turbine. It coincided with the Group of Seven finance ministers announcing a price cap on Russian oil.
The euro slid to $0.9876 in early European trade, the lowest level since 2002, while sterling -- with the British economy also vulnerable to rising gas prices -- dropped half a percent to a new 2-1/2 year low of $1.1444.
“Gas flows have been curtailed even more than expected and we have already seen evidence of demand destruction weighing on activity,” said Michael Cahill, a strategist at Goldman Sachs.
“We now expect the Euro to fall further below parity ($0.97) and remain around that level for the next six months,” he added.
In what is a huge week for the euro, investors are also preparing for the European Central Bank meeting on Thursday and markets have priced a near 80% chance of a supersized 75 basis point (bp) interest rate hike.
ECB officials will be keen to see the euro, which has lost around 8% of its value in the past three months, stabilize. That will feed into the desire to try and tame inflation through tightening policy.
Other currencies that tend to perform badly when market confidence is shaken also fell on Monday. The risk-sensitive Australian dollar slid 0.5% and was near a seven-week low at $0.6774.
The dollar’s appeal as the go-to currency this year helped it to rise even against safe-haven currencies. The Japanese yen, down at 140.35 per dollar, was under pressure near a 24-year low.
“The first order effect seems to be that the heightened geopolitical risk and consequent adverse global demand shocks will probably be the effects dominating,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.
“The adverse demand shocks in a very unsavory geopolitical environment are probably going to trigger, and reflect, safe demand for the US dollar ... the European currencies are perhaps going to be the worst hit and on the back foot.
The offshore yuan fell to a new two-year low, with the dollar gaining 0.4% to 6.9543 per dollar, as worries linger over COVID-19 lockdown measures in the country.
China’s southern tech hub of Shenzhen said it would adopt tiered anti-virus restriction measures beginning on Monday, while Chengdu announced an extension of lockdown curbs, as the country grapples with fresh outbreaks.