Thursday October 05, 2023

China’s anti-lockdown protests shake stocks and oil

By News Desk
November 29, 2022

NEW YORK/ LONDON: U.S. stocks tracked a decline in equities worldwide and oil was sold off on Monday as rare protests in major Chinese cities against the country's strict zero-Covid curbs fuelled concerns about global economic growth.

A surge in Covid cases and clashes between police and protesters across several major Chinese cities over the weekend also helped push U.S. Treasury yields lower and even safe-haven assets like the dollar and gold were in the red.

"There are concerns over China's increasing Covid cases and how the government is going to react. We've gone from what we considered to be a reopening to likely greater restrictions," said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.

"If you've got one of the largest economies coming off-line that's going to weigh on global growth. It's going to influence all companies one way or another." The Dow Jones Industrial Average fell 192.36 points, or 0.56 percent, to 34,154.67, the S&P 500 lost 30.51 points, or 0.76 percent, to 3,995.61 and the Nasdaq Composite dropped 90.21 points, or 0.8 percent, to 11,136.14.

The pan-European STOXX 600 index slipped 0.50 percent and MSCI's gauge of stocks across the globe shed 0.71 percent. Emerging market stocks dropped 0.94 percent. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.1 percent lower, while Japan's Nikkei lost 0.42 percent.

Oil prices, sensitive to the strictness of China's lockdown as a barometer for demand, pared some losses but earlier U.S. crude had fallen to its lowest level since late December 2021. Brent crude dropped by $1.32, or 1.6 percent, to trade at $82.31 a barrel at 10:48 a.m. ET (1548 GMT), having slumped more than 3 percent to $80.61 earlier in the session for it’s lowest since Jan. 4.

U.S. West Texas Intermediate (WTI) crude slid 75 cents, or 1 percent, to $75.53 after touching its lowest since Dec. 22 last year at $73.60. Both benchmarks, which hit 10-month lows last week, have posted three consecutive weekly declines.

Phil Flynn, an analyst at Price Futures Group in Chicago, said oil was paring loses as investors looked ahead to an OPEC+ meeting this weekend.

"We feel some of the selling based on reports of China uprisings was overdone," Flynn said. "Inventories are still near record lows and this probably increases the odds of an OPEC production cut." The Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, will meet on Dec. 4. In October, OPEC+ agreed to reduce its output target by 2 million barrels per day through 2023.

In currencies, the safe-haven Swiss franc and Japanese yen gained, while the Aussie dollar and Chinese yuan underperformed. The U.S. dollar dipped, meanwhile, which analysts said was unusual given its typical safe-haven role.

“It does suggest perhaps that the swing against the dollar in the sense of the broader market mood or market positioning is perhaps running a little bit deeper this morning and that might well be significant,” Shaun Osborne, chief FX strategist at Scotiabank in Toronto, said.

The dollar move had some market analysts blaming falling U.S. bond yields which made the greenback less attractive against Japan's currency.

The dollar index fell 0.292 percent, with the euro up 0.13 percent to $1.0409. The Japanese yen strengthened 0.28 percent versus the greenback at 138.71 per dollar, while sterling was last trading at $1.2044, down 0.41 percent on the day.

The dollar was down 0.4 percent against the Swiss franc after earlier falling as much as 0.77 percent. In Treasuries Benchmark 10-year notes were down 2.8 basis points to 3.674 percent, from 3.702 percent late on Friday.

The 30-year bond was last down 2.7 basis points to yield 3.725 percent, from 3.752 percent, while the 2-year note was down 3.9 basis points to yield 4.4402 percent. Fears about Chinese economic growth hit other commodities markets, with copper and other metals also falling.

The worries about China's Covid policies overshadowed any support from the Chinese central bank's 25 basis point cut to the reserve requirement ratio (RRR) announced on Friday, which would free about $70 billion to prop up a faltering economy.

China had announced a fifth consecutive day of record new local Covid cases with 40,052 infections on Monday, while in Shanghai demonstrators and police clashed on Sunday night as protests flared for a third day.

There were also protests in Wuhan, Chengdu and parts of the capital Beijing as Covid restrictions were put in place.

Gold prices gave up gains after touching a one-week high of $1763.70 per ounce. Spot gold dropped 0.5 percent to $1,748.07 an ounce.