Markets sink over China lockdowns, interest fears

LONDON: World stock markets mostly sank on Monday and oil prices slumped as China’s Covid lockdowns added to stubborn fears over the impact of rising US interest rates and surging inflation.

Frankfurt, London and Paris all fell more than two percent, as did Tokyo.

On Wall Street, the Dow was down nearly two percent in late morning trading, with the techheavy Nasdaq continuing a steep decline with a 3.7 percent drop.

Meanwhile, bitcoin plunged to a 2022 low below $33,000 as investors shunned the volatile cryptocurrency.

“The bloodleting on stock markets has continued today as we start a new week ... with the biggest declines being seen in basic resources ater the latest China trade data showed that imports ground to a halt in April,” said market analyst Michael Hewson at CMC Markets UK.

Millions of people in Beijing stayed home on Monday as China’s capital tries to fend off a Covid-19 outbreak with creeping restrictions on movement.

Beijing residents fear they may soon find themselves in the grip of the same draconian measures that have trapped most of Shanghai’s 25 million people at home for weeks.

Lockdowns across dozens of Chinese cities -- from the manufacturing hubs of Shenzhen and Shanghai to the breadbasket of Jilin -- have wreaked havoc on supply chains over recent months and further stoked global inflationary pressures.

Investors were given more bad news on Monday as China’s April exports slumped to their lowest level in almost two years, due to the nation’s strict zero-covid policy. Exports plunged to 3.9 percent on-year, while imports were stagnant for April.

Data also showed the lockdowns have already hit oil demand in China, prompting a five percent drop in oil prices.

“Oil is offside too as China confirmed its oil imports in the first four months of the year fell by 4.8 percent,” said David Madden at Equiti Capital.

Stock markets had dived last week ater the Federal Reserve ramped up interest rates by a half-percentage point and flagged more hikes to tackle decades-high inflation.

“Anxiety is stemming from the Fed’s next moves, with uncertainty creeping in about the scale and speed of interest rate hikes,” said Hargreaves Lansdown analyst Sophie Lund-yates.

Analysts at Charles Schwab brokerage said that “elevated inflation pressures continue to cloud conviction, with the Fed and other central banks beginning to tighten monetary policy.

“Meanwhile, inflation concerns continue to be exacerbated by the war in Ukraine and ongoing supply chain challenges,” they added.

Global markets have also taken a beating this year from Russia’s invasion of Ukraine.

President Vladimir Putin on Monday defended Russia’s offensive in Ukraine and blamed Kyiv and the West, as he looked to use grand Victory Day celebrations to mobilise patriotic support for the campaign.

However, investors were relieved that Putin made no major announcements, despite reports he could use the anniversary to announce an escalation of the conflict or a general mobilisation.

“Putin has not declared a war on Ukraine to enable full mobilisation which is obviously a relief,” noted Markets.com analyst Neil Wilson.

Losses on Wall Street deepened near midday Monday on worries that rising inflation and interest rates will hit consumer spending and slow the economy.

Near 1555 GMT, the Dow Jones Industrial Average was down 1.4 per cent at 32,433.31, and the broad-based S&P 500 fell 2.2 percent to 4,031.59.

The tech-rich Nasdaq Composite Index slumped 3.0 percent to 11,778.18, but had lost more than 3.5 percent at its worst point.

Stocks have been under pressure since Thursday as markets grapple with the Federal Reserve’s shit towards higher interest rates to contain surging inflation.

“With a weekend to think over how last week ended, it is clear this morning that market participants are not yet comfortable with the idea of buying on the weakness,” said Briefing.com analyst Patrick O’hare.

“There are misgivings about the achievability of earnings growth estimates and the resiliency of the US consumer in the face of persistent inflation pressures and rising interest rates.”

Large tech names were generally lower, with Apple, Amazon, Facebook and Neflix all down at least two percent. Travel shares also were under pressure, with American Airlines down 5.4 percent, Carnival 7.4 percent and Marriot International 2.8 percent.

UK shares ended lower on Monday, as tightening lockdowns in China added to investors’ concerns about a recession amid the Bank of England’s dour economic outlook last week.