SYDNEY, Nov 21 (Reuters) – Asian stock markets and oil prices fell on Monday as investors worried about an economic slowdown due to new COVID-19 restrictions in China, with resulting risk aversion benefiting bonds and the dollar.
Residents of Beijing’s most populous district were urged to stay home on Monday as the city’s number of COVID-19 cases rose, while at least one district in Guangzhou was locked down for five days. read more read more
The flurry of domestic events has been a setback to hopes for an early easing of severe pandemic restrictions, partly due to a 10% drop in oil prices last week.
Chinese blue chips (.CSI300) fell 1.3% in early trade, dragging MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) down 1.4%. Japan’s Nikkei (.N225) was flat and South Korea (.KS11) lost 1.2%.
S&P 500 futures fell 0.3%, while Nasdaq futures fell 0.2%. EUROSTOXX 50 futures lost 0.4%, and FTSE futures lost 0.2%.
Thursday’s Thanksgiving holiday in the US, along with the distraction of the soccer World Cup, could dampen trade, while Black Friday sales will provide insight into consumer sentiment and the outlook for retail stocks.
The minutes of the US Federal Reserve’s latest meeting are due on Wednesday, and given how officials have pushed back against market easing in recent days, they may sound dour.
Atlanta Federal Reserve President Raphael Bostic said on Saturday he was prepared to hike by half a point in December, but also stressed that interest rates will remain higher for longer than expected. read more
Futures suggest an 80% chance of a peak of 50 basis points to 4.25-4.5% and rates around 5.0-5.25%. They also have price reductions for the end of next year.
“We are comfortable that the continued slowdown in US inflation and European growth will moderate the pace of tightening starting next month,” said Bruce Kasman, head of research at JPMorgan.
“But for central banks to pause, they also need clear evidence that labor markets are softening,” he said. “Recent reports from the US, Eurozone and UK point to only limited moderation in labor demand, while news on wages points to continued pressures.”
The central banks of Sweden and New Zealand are expected to raise interest rates by perhaps 75 basis points this week.
At least four Fed officials are scheduled to speak this week, a teaser ahead of Chairman Jerome Powell’s Nov. 30 speech that will determine the rate outlook at the Dec. 30 policy meeting.
PRICED FOR A RECESSION
Bond markets clearly think the Fed will tighten too much and push the economy into recession, as the yield curve is the most inverted it has been in 40 years.
The yield on 10-year notes fell to 3.79%, leaving them 72 basis points below the two-year.
The Fed chorus helped stabilize the dollar after a recent sharp selloff, although speculative positioning in futures led to a net short in the currency for the first time since mid-2021. read more
The dollar was little changed at 140.36 yen on Monday after a bounce from 137.67 last week. The euro fell 0.2% to $1.0298, well below its four-month high of $1.1481.
The US dollar index gained 0.25% to 107,180, up from last week’s 105,300 level.
“Given how much US bonds and the dollar have fallen over the past few weeks, we think there’s a good chance they’ll bounce back if the Fed’s minutes match members’ recent hawkish language,” Jonas Goltermann said. Chief Markets Economist at Capital Economics.
Meanwhile, the turmoil in cryptocurrencies continued unabated with the FTX exchange filing for protection in US bankruptcy court, saying it owes its 50 largest creditors nearly $3.1 billion. read more
In commodity markets, gold was slightly lower at $1,747 an ounce after last week’s 1.2% loss.
Oil futures failed to find ground after Brent lost 9% and WTI nearly 10% last week.
“Brent” fell another 98 cents to $86.64, while US crude oil for January decreased by 90 cents to $79.18/barrel.
Reporting by Wayne Cole; Edited by Kenneth Maxwell
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