- Chinese stocks fall as coronavirus cases rise in Beijing
- US yield curve nears steepest level since 2000
- Dollar, bonds firmer ahead of Fed minutes
- Oil prices fall again after losing almost 9% last week
LONDON, Nov 21 (Reuters) – Global stocks and oil prices fell on Monday as new COVID-19 restrictions in China fueled concerns about the global economic outlook.
The safe-haven dollar rallied while the US Treasury yield curve remained deeply inverted in a sign that investors remain alert to global recession risks.
The coronavirus outbreaks in China are a blow to hopes of an easing of strict pandemic restrictions, a factor cited for a 10% drop in oil prices last week and a lackluster open on Monday for European stocks.
Beijing’s most populous district urged residents to stay home Monday as the number of COVID cases in the city rose, while at least one district in Guangzhou was locked down for five days.
This hit major European stocks (.STOXX), with the Frankfurt and Paris markets weaker, while S&P 500 and Nasdaq futures fell 0.5% and 0.8% respectively.
MSCI’s broader index of world stocks (.MIWD00000PUS) fell 0.5%.
The US Thanksgiving holiday on Thursday and the distraction of the World Cup could make trading thin, while Black Friday sales will offer an idea of how consumers are faring.
A risk-off sentiment kicks off the week, said Fiona Cincotta, a senior market analyst at City Index in London.
“There is demand for safe havens like the dollar and riskier assets are on the defensive,” he added. “The other thing to keep in mind is that we’ve had a strong rally, so there’s a sense of need to take stock of where we are.”
The dollar rose 1.1% against the Japanese yen to 141.94, after touching its highest level since November 11. The pound and the euro fell 0.7% and 0.8% respectively, breaking the 18-week highs set last week.
China’s yuan fell to a 10-day low against the dollar on Monday on worsening COVID-19 infection numbers.
Atlanta Federal Reserve Chairman Raphael Bostic said Saturday he was ready to forego a half-point interest rate hike in December, but also stressed that rates will likely stay high for longer than expected. the markets await.
Inflation has been trending lower since June, when it hovered at 9.1%, raising expectations that a Fed rate spike is near.
“But if the Fed signals a loosening too soon, it could ease monetary conditions too much. And that’s why they’re talking about the possibility that rates could be higher for longer,” said Michael Hewson, chief market analyst. from CMC Markets UK. .
“It’s just a joke to make sure the markets don’t price a pivot too early,” he said.
Bond markets suspect the Fed will tighten too much and drive the economy into recession. The Treasury yield curve, as measured by the gap between two-year and 10-year bond yields, is around -70 basis points (bp) and close to the level last seen in 2000.
Two-year Treasury yields were last up 2bps on the day at 4.53%, while 10-year yields were up just 1bp at 3.83%.
There are at least four Fed officials scheduled to speak this week ahead of a speech by Chairman Jerome Powell on November 30 that will define the rate outlook at the December policy meeting.
“I think we will continue to see yields come down this week,” said Antoine Bouvet, senior rates strategist at ING.
“European PMIs (Purchasing Managers’ Index) are likely to signal a slowdown in the economy, this week’s FOMC minutes are likely to look more dovish than the very hawkish tone in Powell’s press conference after the meeting, and the China COVID news, in general, increases risk aversion, and therefore pushes yields lower.”
The central banks of Sweden and New Zealand are expected to raise rates this week, perhaps by 75bp.
Fed chorus has helped the dollar stabilize after its recent sharp sell-off, though speculative futures positioning has gone net short on the currency for the first time since mid-2021.
Meanwhile, the turmoil in cryptocurrency continued with exchange FTX filing for US bankruptcy court protection, saying it owes its 50 largest creditors almost $3.1 billion.
In commodity markets, gold fell 0.5% to $1,740 an ounce, after falling 1.2% last week.
Oil futures failed to find a bottom after last week’s battering that sent Brent crude tumbling nearly 9%.
Brent crude fell 0.5% to $87.16, while US crude futures fell 0.6% to $79.59 a barrel.
(This story has been re-archived to remove the odd ‘a’, paragraph 9)
Reporting by Nell Mackenzie; Additional reporting by Alun John; Edited by Dhara Ranasinghe and Alexander Smith
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