Markets plunge on China lockdowns, rate hike fears

LONDON: Stock markets and oil prices sank Monday on growing concern that lockdowns in China aimed at fighting a worsening COVID outbreak could further harm a world economy battling decades-high inflation. The losses extended last week’s sell-off triggered by Federal Reserve boss Jerome Powell indicating that the US central bank would hike interest rates by half a percentage point next month and possibly several times more this year.

That has lent strong support to the dollar, which is benefitting also from its traditional haven status.

Dollar-denominated oil prices at one point tumbled more than five percent Monday. Among the world’s major stock markets, Shanghai led the losses, closing down more than five percent.

In Europe, Paris shed 2.2 percent in afternoon deals. French President Emmanuel Macron is set to begin efforts to unite a deeply divided nation after winning re-election Sunday in a battle against rival Marine Le Pen that saw the far right come its closest to taking power.

The euro and yuan slid against the dollar, while sterling lost one percent to hit a 19-month low at $1.2705. “The markets have fallen out of bed... in a big way,” noted AJ Bell investment director Russ Mould.

“The prospect of further restrictions in China could lead to a poisonous mix of further inflationary pressure, as supply chains in the so-called ‘factory of the world’ get disrupted, and weaker economic growth.” Officials in finance hub Shanghai reported 51 deaths Monday, its highest daily toll despite weeks of strict containment measures, while Beijing warned of a “grim” situation as infections rise.

Investors were already fleeing risk assets as they become worried that the Fed tightening will knock the pandemic economic recovery off course and dent companies’ bottom line.