Stocks tumble on China Covid lockdown concerns, Fed rate hike bets
Updated at 10:41 a.m. EST
US stocks fell on Monday as the dollar soared and oil prices fell sharply as investors retreated from risky markets amid renewed Covid restrictions in China and concerns over the impact on consumer demand of the Federal Reserve’s hawkish stance on inflation.
Chinese authorities ordered millions of residents of the capital of Beijing to undergo mandatory testing over the weekend as infections spread deep in the city of 20 million amid the current resurgence of coivd in the country. In Shanghai, city officials tightened their lockdown rules as restrictions entered a fourth week in China’s largest metropolitan area.
Stocks in the region were hammered accordingly, with the Shanghai Composite dropping 5.15%, the biggest single-day drop in more than two years, and the MSCI ex-Japan regional index dropping 2.4% to the closing of the markets.
European stocks fell 2.06% at the start of the Frankfurt session as markets saw little improvement after Emmanuel Macron’s decisive victory in the second round of the French presidential elections.
The moves heightened investor concerns, already evident during last week’s selloff in the US market, which rose 5% against the S&P 500 over a two-day period, from peak to trough, that the signal for The Fed’s aggressive rate will hit consumer demand hard in the second half of the year as bets on a 50 basis point rate hike at the next three policy meetings continue to gather pace.
To underscore that point, last week saw the largest weekly outflow of funds from the stock market — $17.5 billion — so far this year, according to data from Bank of America.
As a result, yields on the benchmark 10-year note fell to 2.787% in New York trading as investors rushed to hedge in risk-free markets, taking the US dollar index, which tracks the note. green against a basket of six global currencies, 0.43% higher to a new two-year high of 101.685.
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The moves precede the busiest list of the first quarter earnings season this week, with nearly 180 S&P 500 companies updating March quarter earnings for the first glimpse of GDP growth in the biggest economy. of the world on Thursday.
Microsoft (MSFT) – Get the Microsoft Corporation report Google (GOOGL) – Get the Class A report from Alphabet Inc.Metaplatforms (Facebook) – Get the Class A report from Meta Platforms Inc. and apple (AAPL) – Get the Apple Inc.the four largest weightings in the S&P 500, will report this week, starting with Microsoft after markets close on Tuesday, along with blue-chip industrials such as General Electric (GE) – Get the General Electric company reportBoeing (BA) – Get Boeing company reportas well as oil majors Chevron (CLC) – Get Chevron Corporation report and Exxon (XOM) – Get Exxon Mobil Corporation report.
With the Fed in its so-called ‘quiet period’ ahead of its policy meeting in early May, investors should also rely on Thursday’s first-quarter GDP flash estimate, with analysts expecting a growth rate 1.1%, and Friday’s reading of the Fed’s favorite inflation gauge, the PCE price index, which hit a four-decade high of 5.4% last month.
Oil prices were also down, with traders cutting bets on short-term demand from China – the world’s biggest energy importer – due to its “zero Covid” policy.
WTI futures for June delivery fell $5.85 to $96.22 a barrel while Brent contracts for the same month, the global benchmark, fell $5.90 to 100, $75 a barrel.
On Wall Street, the Dow Jones Industrial Average fell 315 points in the opening hour of trade while those tied to the S&P 500, which is down 5.7% for the month and 10.37% for the year, fell another 32 points. The tech-focused Nasdaq Composite, which is down 20% from its mid-November peak, gained 30 points as yields on 2-year notes fell to 2.571%.
Twitter (TWTR) – Get the report from Twitter, Inc. shares rose 3.4% amid reports that the social media group’s board leaders have entered takeover talks with billionaire Tesla (TSLA) – Get the Tesla Inc report CEO Elon Musk.
Coca Cola (KO) – Get Coca-Cola Company Report gained 0.5% after posting stronger-than-expected first-quarter results on Monday, while confirming its full-year profit and sales guidance, in what the iconic drinks group called a “very dynamic and uncertain operating environment”.
Tesla shares fell 1.6% as Shanghai extended its Covid lockdown into a fourth week, potentially further limiting production at the automaker’s main plant based in Asia.
ActivisionBlizzard (ATVI) – Get the report from Activision Blizzard, Inc. fell 1.4% after posting weaker-than-expected first-quarter results on Monday in a surprise premarket release that pointed to weaker demand for its latest Call of Duty franchise.