China lockdowns, rate hike fears batter stock markets

Stock markets sank Monday on developing issues that lockdowns in China geared toward preventing a worsening Covid outbreak may want to threaten the USA’s economic system and worldwide delivery chains.

The losses prolonged a promote-off across the world final week fuelled by way of remarks from Federal Reserve boss Jerome Powell indicating officials will hike interest rates by half of a point next month and likely numerous times more by using yr’s stop.

China’s war to get a grip on a Covid outbreak has compelled Shanghai — the USA’s biggest city — into lockdown and dealing a blow to demand.

Officials in the finance hub said 51 deaths Monday, its maximum day by day toll notwithstanding weeks of strict containment measures, whilst Beijing warned of a “grim” situation as infections upward push.

The lockdowns will “cause a logistical problem that’s going to affect not just China but also the rest of the world”, OANDA’s Jeffrey Halley told Bloomberg TV.

Officials’ determination to continue with a zero-Covid policy as well as a lack of government stimulus, “that all points to lower China stocks and we are going to see a weaker yuan going forward”.

Investors were already fleeing risk assets as they become worried that the Fed tightening — to fight inflation at more than 40-year highs — will knock the pandemic economic recovery off course and dent companies’ bottom line.

With earnings season underway, a close eye is being kept on what firms say about the impact on and the outlook for business in light of inflation, forecast rate hikes, supply chain snarls, and the Ukraine war.

“Having spent most of the last few weeks trying to put to one side concerns about events in eastern Europe, a slowdown in China, and the increasing risks of what inflation might do to company earnings, as well as consumer incomes, the final straw appears to be a concern about the prospect of a policy mistake by central banks, and a possible recession by the end of the year,” said Michael Hewson of CMC Markets.

And Geir Lode, at Federated Hermes, added: “There has been little to avert the investor pessimism as inflation and interest rate expectations start to bite.

“In particular due to the uncertainty of the macro environment, expectations are low with regard to forwarding estimates and guidance, building on lowered expectations from the previous quarter.”

All three main indexes on Wall Street ended more than two percent down Friday, and Asia followed suit with hefty losses.

Hong Kong and Shanghai led the selling, with each market struggling with hefty losses, while Tokyo, Seoul, Singapore, Taipei, Mumbai, Bangkok, and Jakarta had been additionally deep inside the pink.

London, Paris, and Frankfurt were sharply decreased in the morning.

Sydney and Wellington have been closed for the holidays.

The hit to demand power in China additionally dragged on crude. WTI fell beneath $one hundred a barrel, at the same time as the struggle in Ukraine hits components of the black gold because of embargoes on Russian exports.

“Oil is rerating lower due to the China consumption hit while the Federal Reserve is raising interest rates to slow down the US economy,” said Stephen Innes at SPI Asset Management.

“Those are two gusty headwinds suggesting some oil bulls will give way to recession fears and demand devastation.”

On currency markets, the euro was unable to hold a brief rally that came on the back of Emmanuel Macron’s victory in France’s presidential election, seeing off far-right challenger Marine Le Pen.

Tokyo – Nikkei 225: DOWN 1.9 percent at 26,590.78 (close)

Hong Kong – Hang Seng Index: DOWN 3.7 percent at 19,869.34 (close)

Shanghai – Composite: DOWN 5.1 percent at 2,928.51 (close)

London – FTSE 100: DOWN 1.7 percent at 7,393.58

Brent North Sea crude: DOWN 4.0 percent at $102.41 per barrel

West Texas Intermediate: DOWN 4.0 percent at $97.95 per barrel

Euro/dollar: DOWN at $1.0743 from $1.0801 late on Friday

Dollar/yen: DOWN at 128.21 yen from 128.51 yen

Pound/dollar: DOWN at $1.2754 from $1.2834

Euro/pound: UP at 84.23 pence from 84.14 pence

New York – Dow: DOWN 2.8 percent at 33,811.40 (close)