Fears of additional Covid lockdowns in China send global stocks tumbling.

On Monday, global stock markets tumbled dramatically as fears of fresh Chinese lockdowns compounded to worries about the global economy’s health.

China’s benchmark stock index fell the most in a single day since February 2020, after Beijing’s largest district initiated mass Covid-19 testing in response to an increase in infections in the capital.

The CSI 300 index dropped 4.9 percent to its lowest level since late May 2020, after authorities ordered inhabitants of Chaoyang, which has a population of 3.45 million, to be tested three times this week. Producers of raw materials, technology companies, and industrial conglomerates were among the biggest losers.

Fears of limits in Beijing triggered panic buying at stores, as locals braced for restrictions akin to those in Shanghai, where a lockdown is already in its fourth week.

A municipal official warned on Sunday that the infection in Beijing was “spreading surreptitiously” from unknown sources and “growing swiftly.”

During the coronavirus outbreak in Shanghai, a medical worker gathers a sample.
Markets around the region were affected by fears that China might impose further restrictions, stalling its recovery. Hong Kong’s Hang Seng fell 3.7 percent, while Australia’s S&P/ASX index fell 1.5 percent.

The FTSE 100 index fell 141 points, or 1.9 percent, to 7380.5 points in London, its lowest close in over five weeks. As a result of increased regulations, mining and energy equities have been among the worst losers.

Despite satisfaction that Emmanuel Macron had won the French presidential election on Sunday, stocks plummeted across Europe, with the Stoxx 600 index shedding 1.8 percent. By lunchtime, Wall Street had added to Friday’s losses, with the S&P 500 down 1%.

The yield on UK, US, and eurozone government bonds declined, indicating that investors were looking for a safe haven asset and expecting weaker growth.
“Covid is still shaking financial markets more than two years after the pandemic began,” said Fawad Razaqzada, a market analyst at City Index and Forex.com.

“Demand concerns have grown when Beijing shut down portions of Chaoyang area as the illness expanded there. People were alarmed because they had hoped that the lockdowns in Shanghai would be eased rather than further restrictions being imposed.

Economists have warned that China’s efforts to stick to its zero-Covid policy could result in more restrictions in the coming months, upsetting global supply chains and raising inflation.

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“Without a major overhaul of quarantine rules, the economic damage caused by Omicron will almost certainly increase,” predicted Frédérique Carrier, RBC Wealth Management’s head of investment strategy in the United Kingdom and Asia. “This month, Premier Li Keqiang has issued repeated warnings about growth risks, and the State Council and relevant government ministries have directed local authorities to minimise transportation and logistical disruptions while implementing local quarantines.

“Disruptions in domestic logistics and port operations could affect regional or global supply networks.” Furthermore, some of the cities under siege in southern and eastern China are manufacturing centres for electronic items, chips, and other components.

Benchmark On concerns that demand from the steel sector may fall, China iron ore futures fell over 11% to their lowest level in more than a month. Palladium, which is used in automobile catalytic converters, has dropped more than 10% in price.

Brent crude fell below $100 ($78.60) a barrel for the first time in almost two weeks, causing oil prices to plummet by more than 6%.
“The world’s largest crude importer is on track for the worst oil demand shock since early 2020,” said Saxo Bank commodity strategist Ole Hansen. “Supply concerns haven’t vanished overnight, with Libyan supply interruptions, sanctions, and the possibility of a broadening restriction on Russian crude oil imports all persisting.

Markets are also concerned that the US central bank would hike interest rates sharply this year, after warnings from numerous Federal Reserve members that they will tighten policy to reduce inflation.

The pound fell 1% versus the dollar to an 18-month low of $1.271, a decrease of more than a cent.