Stocks Drop on China Covid Worries; Dollar Rises: Markets Wrap

(Bloomberg) — Stocks fell amid concern that China may tighten Covid curbs after a string of reported deaths, with investors seeking shelter in the dollar.

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S&P 500 and Nasdaq 100 contracts both dropped by at least 0.5%. Chinese stocks fell in US premarket trading, amid worries that progress in China’s reopening could see setbacks. Walt Disney Co. defied the gloom, rallying after the company surprised by bringing back former leader Bob Iger as chief executive officer. European equities edged lower, with mining stocks falling.

The dollar climbed against its Group-of-10 counterparts and emerging-market currencies. Treasuries were steady after giving back earlier gains. Oil sank on concern of a weakening demand outlook from China.

China saw its first Covid-related death in almost six months on Saturday and another two were reported on Sunday. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions. A city near Beijing that was rumored to be a test case for the end of virus restrictions has suspended schools, locked down universities and asked residents to stay at home for five days.

“Not only would fresh lockdowns in major cities take a sledgehammer to growth into year-end, but it could also complicate any plans that are being put in place to soften the zero-Covid policy next year,” said Craig Erlam, senior market analyst at Oanda. “We’re back into uncertain territory which could slow the recovery in stock markets.”

On the outlook for stocks, Goldman Sachs Group Inc. strategists said that investors hoping for a better year in 2023 would be disappointed, with the bear market phase not yet over.

“The conditions that are typically consistent with an equity trough have not yet been reached,” strategists including Peter Oppenheimer and Sharon Bell wrote in a note on Monday. They said that a peak in interest rates and lower valuations reflecting recession are necessary before any sustained stock-market recovery can happen.

Traders this week will also be looking to the minutes of the most recent Federal Reserve policy meeting for more clues on the course of rate hikes.

Atlanta Fed President Raphael Bostic said he favors slowing the pace of interest rate increases, with no more than 1 percentage point more hikes, to try to ensure the economy has a soft landing. Boston Fed President Susan Collins reiterated her view that options are open for the size of the December interest-rate increase, including the possibility of a 75 basis-point move.

Elsewhere, Hong Kong stocks led declines in Asia as investors weighed whether the recent rally on a China reopening was overdone. Cryptocurrency prices struggled in the ongoing crisis sparked by the downfall of Sam Bankman-Fried’s once powerful FTX empire. Crypto-exposed stocks fell.

Key events this week:

  • US Chicago Fed national activity index, Monday

  • US Richmond Fed manufacturing index, Tuesday

  • OECD releases Economic Outlook, Tuesday

  • Fed’s Loretta Mester and James Bullard speak, Tuesday

  • S&P Global PMIs: US, Euro area, UK, Wednesday

  • US MBA mortgage applications, durable goods, initial jobless claims, University of Michigan sentiment, new home sales, Wednesday

  • Minutes of the Federal Reserve’s Nov. 1-2 meeting, Wednesday

  • ECB publishes account of its October policy meeting, Thursday

  • US stock and bond markets are closed for the Thanksgiving holiday, Thursday

  • US stock and bond markets close early, Friday

Some of the main moves in markets:

Stocks

  • Futures on the S&P 500 fell 0.5% as of 7:25 am New York time

  • Futures on the Nasdaq 100 fell 0.8%

  • Futures on the Dow Jones Industrial Average fell 0.2%

  • The Stoxx Europe 600 fell 0.2%

  • The MSCI World index fell 0.5%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.7%

  • The euro fell 0.9% to $1.0237

  • The British pound fell 0.8% to $1.1800

  • The Japanese yen fell 1.1% to 141.94 per dollar

Cryptocurrencies

  • Bitcoin fell 1.3% to $16,034.52

  • Ether fell 1.9% to $1,120.17

Bonds

  • The yield on 10-year Treasuries was little changed at 3.83%

  • Germany’s 10-year yield advanced one basis point to 2.03%

  • Britain’s 10-year yield advanced two basis points to 3.26%

Commodities

  • West Texas Intermediate crude fell 0.6% to $79.59 a barrel

  • Gold futures fell 0.8% to $1,755.10 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Tassia Sipahutar and Robert Brand.

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