US Stock Futures, Oil Fall on China's Covid Zero: Markets Overview

(Bloomberg) — Investor appetite soured, sending U.S. stock and commodity futures lower after China reaffirmed its Covid-Zero policy stance. The dollar advanced against major currencies due to its appeal as a safe-haven asset.

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The Australian and New Zealand dollars were the biggest losers among G10 currencies, given their sensitivity to the outlook for Chinese economic growth. The offshore yuan weakened.

S&P 500 and Nasdaq 100 contracts fell, as did European stock futures after Wall Street stocks fell sharply for four days on Friday. Stocks opened higher in Japan, South Korea and Australia, although gains were more modest than futures had earlier suggested.

Oil fell about 2%, sending commodities lower on the prospect of weaker demand from China. Sentiment was further hurt by Apple Inc., which forecast lower-than-expected shipments of its latest iPhones amid the impact of China’s lockdown on the supplier’s factory operations.

Expectations for a brisk start to the week were dashed on Saturday when Chinese officials vowed to remain “unwaveringly” strict in Beijing’s approach to eradicating the coronavirus. The nation’s stocks rallied aggressively on Friday on bets that virus restrictions would be eased.

“Yes, China equity valuations are extremely low and very compelling,” George Boubouras, head of research at K2 Asset Management, said on Bloomberg Television. “There’s just too much risk involved.”

The shock from China comes on top of headwinds from the Federal Reserve’s rate hikes. US data on Friday – showing a strong increase in hiring and wages along with higher unemployment – offered a mixed picture for Fed officials debating how long to extend their campaign to curb rising inflation.

Fed funds futures are trending toward pricing in a 50 basis point hike in December, with a peak around 5.1% next year.

The fear on Wall Street is well below the panic levels seen during the pandemic or the 2008 crisis, but the volatility is largely characteristic of 2022.

The dollar’s advance on Monday followed its biggest drop since March 2020 on Friday in Bloomberg’s gauge of the currency. Government securities were little changed in Asia after yields on two-year bonds, which are more sensitive to upcoming policy moves, reversed course and fell on Friday.

“Over the next three to four months, the dollar will continue to move higher,” Mahabien Zaman, head of FX research at Australia & New Zealand Banking Group Ltd., told Bloomberg Television. “It’s really consistent with the recent Fed FOMC meeting that we had, where they said they’re going to slow down, but they’re going to push for peak rates.”

Markets will watch the latest US inflation data on Thursday after the core consumer price index rose more than forecast to a 40-year high in September. Even if prices start to slow, the CPI is well above the Fed’s comfort zone.

Key events this week:

  • China Trade, Monday

  • Fed officials Susan Collins, Loretta Mester and Tom Barkin speak at events, Monday

  • Eurozone retail sales, Tuesday

  • US midterm elections, Tuesday

  • EIA oil inventory report Wednesday

  • China Aggregate Funding, PPI, CPI, Money Supply, New RMB Loans, Wednesday

  • US Wholesale Stocks MBA Mortgage Applications Wednesday

  • Fed officials John Williams, Tom Barkin speak at events, Wednesday

  • US CPI, US Initial Jobless Claims, Thursday

  • Fed Reps Lori Logan, Esther George, Loretta Mester speak at events, Thursday

  • American University of Michigan Consumer Attitudes, Friday

Some of the major moves in the markets:

Stock up

  • S&P 500 futures were down 0.6 percent as of 9:39 a.m. in Tokyo. The S&P 500 rose 1.4% on Friday

  • Nasdaq 100 futures fell 0.7%. Nasdaq 100 rose 1.6%

  • Euro Stoxx 50 futures fell 0.4%

  • Hang Seng futures rose 1.7%

  • The Topix rose 0.7%

  • The S&P ASX rose 0.3%

Currencies

  • The Bloomberg Dollar Spot index rose 0.3%

  • The euro fell 0.3% to $0.9932

  • The Japanese yen fell 0.3 percent to 147.07 per dollar

  • The offshore yuan fell 0.6 percent to 7.2316 per dollar

  • The Australian dollar fell 0.6% to $0.6432

Cryptocurrencies

  • Bitcoin fell 1% to $20,925

  • Ether fell 1.8% to $1,575

Bonds

Goods

  • West Texas Intermediate crude fell 1.7% to $91.07 a barrel

  • Spot gold fell 0.6% to $1,672.61 an ounce

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