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Sunday, June 26, 2022

Stock markets and oil slide as China lockdown fears rattle markets – business live | Business

Introduction: China lockdown worries hit markets

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Stock markets are beginning the new week on the back foot amid anxiety over China’s Covid-19 lockdowns and the health of the global economy.

Growth fears are rising as authorities in Beijing began a mass testing push after a spike in Covid cases.

Around 3.5 million residents and workers in its biggest district, Chaoyang, must report for three coronavirus tests this week.

More than a dozen residential buildings were put under lockdown in Chaoyang, an affluent downtown area home to embassies and international businesses. Fears of a City-wide lockdown sent Beijingers racing to supermarkets to stock up on food today.

The city has also imposed tight entry controls, and some gyms and after-school activity providers have stopped in-person classes.

With Shanghai further tightening its restrictions on the movement of some residents in the financial hub last week, concerns that tough lockdowns could stall China’s recovery are growing. That would have a knock-on impact on the global economy, creating more supply chain disruption and hitting energy demand.

China’s stock market has taken a slide, with the benchmark CSI300 index tumbling 3.5% today to its lowest level since late May 2020.

Other Asia-Pacific markets have been hit too, with Hong Kong’s Hang Seng shedding 3.3%, Japan’s Nikkei down 1.5% and Australia’s S&P/ASX index losing 1.6%.

Commodities are weakening too, with iron ore prices falling and oil at a two-week low.

China faces a “rapidly deteriorating growth outlook amid zero-Covid restrictions”, says Alvin Tan, analyst at RBC Capital Markets.

The renminbi has come under further pressure overnight after news that a Beijing district has to undergo three days of Covid testing starting today, plus Shanghai entering a fourth week of lockdown. Crude oil, iron ore, and Chinese equities have all slumped.

European markets are set for a lower open, adding to last Friday’s losses, with the main indices down over 1% in pre-market trading.

Wall Street ended last week with a tumble, after Federal Reserve chair Jerome Powell said it was ‘absolutely essential,’ to tame inflation, and that the Fed could lift interest rates by 50 basis points in May.

Also coming up today…

The CBI’s latest industrial trends report will highlight the pressures on UK factories from rising costs, while the IFO institute will update us on Germany’s business confidence.

And Twitter has reportedly begun negotiations with Elon Musk after pressure from shareholders, after Musk disclosed details of how his $43bn acquisition offer would be finances.

Reuters reports:

The company’s decision to engage with Musk, taken earlier on Sunday, did not mean it would accept his $54.20 a share bid, the sources said. It signified, however, that Twitter was exploring whether a sale to Musk was possible on attractive terms.

Musk, chief executive of Tesla, has been meeting with Twitter shareholders in the last few days seeking support for his bid. He has said Twitter needs to be taken private to grow and become a genuine platform for free speech.

The agenda

  • 9am BST: Ifo survey of Germany’s business climate in April
  • 10am BST: Eurozone construction output report for February
  • 11am BST: CBI’s industrial trends survey of UK factories in April
  • 1.30pm BST: Chicago Federal Reserve’s national activity index
  • 3.30pm BST: Dallas Federal Reserve manufacturing index

The selloff in London is gathering pace, with the FTSE 100 index now down 2.15% or 161 points at 7358 points, a fresh five-week low.

Pound hits 18-month low against the dollar

Elsewhere in the markets, the pound has hit its lowest level against the US dollar since September 2020.

Sterling has dropped by almost a cent to $1.2750, adding to its tumble on Friday.

The pound has been hit by weak economic data, including a tumble in retail sales in March as the cost of living crisis hit spending.

The prospect of aggressive rate hikes by the US Federal Reserve is driving up the dollar.

🇬🇧 Sterling fell on Monday to its lowest since September 2020 against a strengthening dollar and edged lower versus the euro, while money markets scaled back their bets on future monetary policy tightening from the BoE.

via Reuters on @PiQSuite pic.twitter.com/fHmYTMlThp

— PiQ  (@PriapusIQ) April 25, 2022

Worries that the Chinese economy is heading for a sharp slowdown this quarter are hitting markets today, says the strategy team at Saxo Bank:

White-knuckle markets after an ugly close Friday on Wall Street spilled into the Monday session in Asia, with concerns of new strict Covid lockdowns in Beijing driving an ugly move lower in Chinese equities and a steep drop in crude oil.

Also, the sudden Chinese decision to weaken its currency at a blistering pace last week has unsettled currency markets, driving an sharp acceleration lower in EM [emerging market] currencies in particular.

The copper price has hit a one-month low in London this morning.

Concerns over demand from China’s factories, and the prospect of several US interest rate rises this year, knocked copper. It has dropped by 1.5% to $9,961 per tonne, the lowest since 16 March.

China market’s worst day since February 2020

Residents and office workers wearing face masks line up for mass coronavirus testing outside a commercial office complex at the central business district in Beijing.
Residents and office workers wearing face masks line up for mass coronavirus testing outside a commercial office complex at the central business district in Beijing. Photograph: Andy Wong/AP

China’s benchmark stock index has suffered its worst day since early in the pandemic, after a day of heavy selling.

The CSI 300 index has closed down 4.94% today, its biggest one-day drop since February 2020, as Beijing’s largest district begins mass-testing and Shanghai’s lockdown enters its fourth week.

The CSI 300, which tracks the top 300 companies traded in Shanghai and Shenzhen, tumbled by 198 points to close at 3,815 points, its lowest since May 2020.

Traders are anticipating export disruption, and a hit to growth, as China tries to stamp out Covid-19 cases, as Jeffrey Halley of trading firm OANDA explains:

China has tightened parts of the Shanghai lockdown, including erecting fences around apartment buildings with Covid-19 infected individuals. Meanwhile, residents of the Chaoyang district of Beijing will have to submit to three days of testing to get on top of the omicron outbreak there, with parts of it “sealed” or “controlled,” to paraphrase Bloomberg’s story this morning. Although some parts of China have been under restrictions longer than Shanghai, omicron’s arrival in Beijing would be an ominous development.

It is important to remember that although market darlings like Tesla and Foxconn are operating normally in China under a “closed-loop,” and China is vigorously playing whack-a-mole across the country to enforce the Covid-zero policy, omicron only has to get lucky once, while those manning the ramparts have to get lucky 100% of the time. Just ask any other previously Covid-zero country.

The difference here is that China is the world’s second-largest economy and has shown no signs it intends to live with the virus.

It would be a brave man that bets on President Xi Jinping backtracking on anything he says he is going to do, or on the government in general. With that in mind, the likely pressure valve is going to be disruption to China’s export machine, and a cratering of consumer confidence.

Here’s the mood in the markets:

Not a great advert for Mondays so far. Equities, oil, metals, the yuan, the Australian dollar all down. Dollar up and away…Markets now…. pic.twitter.com/qFc5NKJmRV

— kit Juckes (@kitjuckes) April 25, 2022

There’s no sign of a Macron relief rally in Europe today.

European stocks have hit their lowest in over a month, as anxiety over China’s economy and the prospect of US interest rate rises overshadow last night’s French presidential election result.

The pan-European Stoxx 600 index is down 1.65%, the lowest point since 16th March, with France’s CAC index sliding 1.7% and Germany’s DAX off 1.4%.

🔔 European Opening Bell 🔔

🇬🇧 FTSE 100 Down 1.5%

🇪🇺 STOXX 50 Down 1.5%

🇪🇺 STOXX 600 Down 1.6%

🇩🇪 DAX Down 1.6%

🇫🇷 CAC 40 Down 1.8% pic.twitter.com/oHvSKBQogZ

— PiQ  (@PriapusIQ) April 25, 2022

Victoria Scholar, head of investment at interactive investor, says:

Despite some political relief in Europe after Macron’s victory, European markets have been overshadowed by broader macro concerns opening under pressure and taking their cues from the sharp sell-off on Wall Street on Friday and in China overnight.

The FTSE 100 has broken below support at 7,400 with China sensitive stocks in the mining sector like Glencore, Anglo American, Rio Tinto leading the leg lower.”

FTSE 100 hits five-week low

The UK’s stock market has opened sharply lower, as China concerns knock the benchmark index down around 1.5%.

The FTSE 100 is currently off by 115 points at 7406 points, its lowest in five weeks, with almost every member in the red.

Mining and commodity stocks are leading the fallers, such as Glencore (-5.5%), Anglo American (-4.5%) and Rio Tinto (-4%).

Insurance group Prudential (-3.5%) which is focused on Asia-Pacific markets, and oil giants Shell (-2.9%) and BP (-3.5%) are also weaker.

Fears about the economic toll of China’s strict Covid Zero policy have pushed its currency, the yuan, to a one-year low.

Bloomberg has the details:

The benchmark CSI 300 Index dropped more than 4% to the lowest since May 2020, wiping out gains from a March pledge by officials to support the economy. The onshore yuan fell to its weakest in a year on concerns about rising capital outflows and oil sank below $100 on worries over Chinese demand.

Concerns over the outbreaks in Shanghai and Beijing are echoing through global markets, Bloomberg adds:

“There are concerns about the Covid situation in Beijing evolving into what happened in Shanghai with some prolonged lockdowns that bites the economy,” said Kevin Li, portfolio manager at GF Asset Management (Hong Kong) Ltd.

Traders are balking at the potential impact of coronavirus restrictions on growth in the world’s second-largest economy, which was already showing signs of slowing down thanks to a property crisis and increased regulation. The growth fears come amid China’s widening policy divergence with the U.S., which has led to foreign outflows and weighed on the yuan.

HERE WE GO. News that lockdowns were spreading to Beijing over the weekend triggered new worries and send stocks, commodities & the yuan tumbling this morning https://t.co/6wViXhSHab via @markets

— Catherine Ngai (@catkngai) April 25, 2022

The CSI 300 Index dropped as much as 2.7% to the lowest since June 2020, wiping out all the gains from that mid March pledge to stabilize markets. The onshore yuan dropped to the lowest levels since April 21 and WTI oil futures are now back below $100/bbl

— Catherine Ngai (@catkngai) April 25, 2022

Check out the photos in this story about Shanghai erecting metal barriers to reflect just how intense the curbs have been there. https://t.co/TIOIofK6L4

— Catherine Ngai (@catkngai) April 25, 2022

“There are concerns about the Covid situation in Beijing evolving into what happened in Shanghai with some prolonged lockdowns that bites the economy,” said Kevin Li, portfolio manager at GF Asset Management (Hong Kong) Ltd.

— Catherine Ngai (@catkngai) April 25, 2022

Molten iron being poured into a container at a steel plant in Hefei, Anhui province, China
Molten iron being poured into a container at a steel plant in Hefei, Anhui province, China Photograph: Jianan Yu/Reuters

Iron ore and steel futures have slumped today on worries that Shanghai’s extended lockdown will hit demand.

Concerns that other parts of China, such as Beijing, could see similar curbs also hit metal prices.

Marketwatch has the details:

The most-traded September iron ore contract on the Dalian Commodity Exchange fell as much as 11% on Monday. They were recently 8.4% lower at 815.0 yuan ($125.35) a metric ton. Iron ore futures in Singapore also declined by as much as 11% in response to the negative sentiment and were recently 6.2% lower at $141.40 a ton.

The most actively traded October steel rebar futures contract on the Shanghai Futures Exchange fell 3.2% to CNY4,857 a ton.

“Intensifying risks presented in rising virus infections [are driving] a need to stay cautious,” said IG market strategist Yeap Jun Rong.

On Friday, Shanghai authorities announced that strict lockdown measures would continue until Covid-19 was eradicated, neighbourhood by neighbourhood, in a push to achieve “community zero-Covid as soon as possible.”

Oil prices tumbles 4%

Brent crude has fallen 4% this morning as concerns grow that China’s Covid-19 outbreaks will hit energy demand and economic growth.

The oil benchmark has fallen to $102.73 per barrel, its lowest in almost a fortnight.

US crude is also down 4%, back below $100 per barrel, as investors react to the prolonged Covid-19 lockdowns in Shanghai and the news of mass testing in Beijing’s largest district.

Oil is also being pulled lower by the prospect of interest rate rises this year as central bankers try to cool inflation.

Analyst Stephen Innes of SPI Asset Management explains:

Oil is rerating lower due to the China consumption hit while the Federal Reserve is raising interest rates to slow down the US economy. Those are two gusty headwinds suggesting some oil bulls will give way to recession fears and demand devastation.

Introduction: China lockdown worries hit markets

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Stock markets are beginning the new week on the back foot amid anxiety over China’s Covid-19 lockdowns and the health of the global economy.

Growth fears are rising as authorities in Beijing began a mass testing push after a spike in Covid cases.

Around 3.5 million residents and workers in its biggest district, Chaoyang, must report for three coronavirus tests this week.

More than a dozen residential buildings were put under lockdown in Chaoyang, an affluent downtown area home to embassies and international businesses. Fears of a City-wide lockdown sent Beijingers racing to supermarkets to stock up on food today.

The city has also imposed tight entry controls, and some gyms and after-school activity providers have stopped in-person classes.

With Shanghai further tightening its restrictions on the movement of some residents in the financial hub last week, concerns that tough lockdowns could stall China’s recovery are growing. That would have a knock-on impact on the global economy, creating more supply chain disruption and hitting energy demand.

China’s stock market has taken a slide, with the benchmark CSI300 index tumbling 3.5% today to its lowest level since late May 2020.

Other Asia-Pacific markets have been hit too, with Hong Kong’s Hang Seng shedding 3.3%, Japan’s Nikkei down 1.5% and Australia’s S&P/ASX index losing 1.6%.

Commodities are weakening too, with iron ore prices falling and oil at a two-week low.

China faces a “rapidly deteriorating growth outlook amid zero-Covid restrictions”, says Alvin Tan, analyst at RBC Capital Markets.

The renminbi has come under further pressure overnight after news that a Beijing district has to undergo three days of Covid testing starting today, plus Shanghai entering a fourth week of lockdown. Crude oil, iron ore, and Chinese equities have all slumped.

European markets are set for a lower open, adding to last Friday’s losses, with the main indices down over 1% in pre-market trading.

Wall Street ended last week with a tumble, after Federal Reserve chair Jerome Powell said it was ‘absolutely essential,’ to tame inflation, and that the Fed could lift interest rates by 50 basis points in May.

Also coming up today…

The CBI’s latest industrial trends report will highlight the pressures on UK factories from rising costs, while the IFO institute will update us on Germany’s business confidence.

And Twitter has reportedly begun negotiations with Elon Musk after pressure from shareholders, after Musk disclosed details of how his $43bn acquisition offer would be finances.

Reuters reports:

The company’s decision to engage with Musk, taken earlier on Sunday, did not mean it would accept his $54.20 a share bid, the sources said. It signified, however, that Twitter was exploring whether a sale to Musk was possible on attractive terms.

Musk, chief executive of Tesla, has been meeting with Twitter shareholders in the last few days seeking support for his bid. He has said Twitter needs to be taken private to grow and become a genuine platform for free speech.

The agenda

  • 9am BST: Ifo survey of Germany’s business climate in April
  • 10am BST: Eurozone construction output report for February
  • 11am BST: CBI’s industrial trends survey of UK factories in April
  • 1.30pm BST: Chicago Federal Reserve’s national activity index
  • 3.30pm BST: Dallas Federal Reserve manufacturing index

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