Stocks, Commodities Tumble on China Covid Outbreak: Markets Wrap

(Bloomberg) – Stocks and commodities tumbled as China’s worsening Covid outbreak fueled fears of a bigger slowdown in the world’s second-largest economy. The dollar and Treasuries gained on haven bids.

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European futures dropped more than 2%, while S&P 500 and Nasdaq 100 futures contracts were also down in a sign of further weakness to come. The MSCI Asia-Pacific gauge fell for the sixth session in seven with sharp declines in Hong Kong and China.

Chinese assets bore the brunt of the sell-off, with a broad gauge of Chinese stocks dropping to the lowest in almost two years. The yuan tumbled about 1% leading declines in emerging-market currencies. China locked down some areas of Beijing and ordered mandatory Covid testing in a district as policy makers raced to prevent a repeat of the outbreak that’s hobbled Shanghai. Crude fell below $ 100 a barrel and iron ore slumped in Singapore.

Treasuries snapped the route of the past week that roiled markets while the dollar extended an advance as investors opted for safe havens. Palm oil jumped after Indonesia, the world’s largest exporter of the commodity, halted exports of cooking oil and its raw materials amid a local shortage.

Fears of a wider lockdown in Chinese capital amid the government’s steadfast adherence to its Covid-zero policy is spooking investors already fretting about supply-chain snarls and inflation. A deteriorating economic outlook from the Shanghai restrictions and disappointment at policies to shore up growth and stabilize markets are denting sentiment.

“The worry is the current policy support that the government has already put in place may not be effective because of the Covid policies,” Jenny Zeng, Alliance Bernstein co-head of Asia Pacific fixed income, said on Bloomberg Television.

The outlook for inflation continues to hang over markets even as the pull back in commodities may provide some cushion. Federal Reserve Chair Jerome Powell had outlined his most bold approach yet to reining in surging prices and the European Central Bank signaled stronger tightening.

“There has been little to avert investor pessimism as inflation and interest rate expectations start to bite,” Geir Lode, head of global equities at Federated Hermes Ltd., said in a note. “Due to the uncertainty of the macro environment, expectations are low with regard to forward estimates and guidance, building on lowered expectations from the previous quarter.”

The war in Ukraine continues to provide an uncertain backdrop as well. US Secretary of State Antony Blinken and Defense Secretary Lloyd Austin arrived in Kyiv for talks as Russia’s war on Ukraine enters its third month.

The euro erased gains made after Emmanuel Macron’s win on a pro-business, pro-Europe platform in the French election removed a key risk for markets. Markets in Australia and New Zealand are closed for holidays Monday.

Events to watch this week:

  • Tech earnings include Alphabet, Meta Platforms, Amazon, Apple

  • EIA oil inventory report, Wednesday

  • Australia CPI, Wednesday

  • Bank of Japan monetary policy decision, Thursday

  • US 1Q GDP, weekly jobless claims, Thursday

  • ECB publishes its economic bulletin, Thursday

Some of the main moves in markets:

Stocks

  • S&P 500 futures drop 0.8% as of 7:26 am in London. The S&P 500 fell 2.8%

  • Nasdaq 100 futures decline 0.8%. The Nasdaq 100 fell 2.7%

  • Topix index sank 1.5%

  • Kospi index lost 1.5%

  • Hang Seng Index fell 3.6%

  • Shanghai Composite Index lost 3.6%

  • Euro Stoxx 50 futures slide 1.7%

Currencies

  • The Japanese yen was at 128.39 per dollar

  • The offshore yuan was at 6.5910 per dollar, down 1%

  • The Bloomberg Dollar Spot Index rose 0.4%

  • The euro was at $ 1.0736

Bonds

Commodities

  • West Texas Intermediate crude fell 3.8% to $ 98.21 a barrel

  • Gold was at $ 1,915.16 an ounce, down 0.9%

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