US equity futures slid and oil tumbled, undermined by the growing unrest in China over Covid restrictions. The dollar and Treasuries ceded earlier gains that were fueled by investors’ dash to safety.
(Bloomberg) — US equity futures slid and oil tumbled, undermined by the growing unrest in China over Covid restrictions. The dollar and Treasuries ceded earlier gains that were fueled by investors’ dash to safety.
Contracts on the S&P 500 and Nasdaq 100 fell, with oil companies prominent among decliners in US premarket trading. Apple Inc. dropped after a report that turmoil at its key Chinese manufacturing hub could result in heavy production shortfalls. Chinese shares listed in the US slipped, including e-commerce giants Alibaba Group Holding Ltd. and JD.com Inc.
Europe’s equity benchmark also fell, led by steep declines in oil stocks.
The unrest in China complicates expectations of the country’s path to reopening, which — along with prospects of more moderate Federal Reserve interest-rate increases — had buoyed sentiment toward riskier assets in recent sessions. Chances are also growing of a messy, earlier-than-expected exit from Beijing’s Covid Zero policy, analysts at Goldman Sachs Group Inc. warned.
“We have seen small and sporadic protests against the harsh Chinese anti-covid measures for some time,” said Stuart Cole at Equiti Capital. “But the difference this time I think is that the protests are growing and become widespread across the country. This is all coming at a time when China’s role as the manufacturing engine for the global economy is spluttering.”
As the developments in China further clouded the outlook for energy demand, oil slumped to the lowest level since December. Gold rebounded after earlier declines that accompanied the strengthening dollar.
The yuan dropped as much as 1.1% before trimming losses against the dollar, while the yen and Swiss franc benefited from haven demand.
Fed Focus
The downbeat mood emanating from China contrasts with the boost to sentiment in global markets last week after the Fed’s Nov. 1-2 meeting minutes showed most officials backing slowing the pace of interest-rate hikes.
Since the Fed’s latest meeting, investors have parsed a bevy of economic data that somewhat eased inflation concerns, further strengthening the case for smaller rate hikes.
The S&P 500 notched a weekly gain of 1.5% that took the index to the highest level since early September. The Nasdaq 100 also eked out a gain for the week.
All eyes will be on the US jobs report this week and on Fed Chair Jerome Powell and New York Fed President John Williams, who are among central bank officials scheduled to speak.
Strategists at Goldman Sachs and Deutsche Bank said stock markets are in for a wild ride next year as they don’t yet reflect the risk of a US recession.
The Goldman team including Christian Mueller-Glissmann and Cecilia Mariotti said their model implies a 39% probability of a US growth slowdown in the next 12 months, but risk assets are only pricing in an 11% chance. Deutsche Bank’s Binky Chadha, meanwhile, expects the S&P 500 Index to slump 19% from current levels in the third quarter as a recession begins, before rebounding in the fourth quarter.
Key events this week:
- Fed’s John Williams speaks, Monday
- Fed’s James Bullard MarketWatch interview, Monday
- ECB’s Christine Lagarde addresses European Parliament committee, Monday
- Euro area economic confidence, consumer confidence, Tuesday
- US Conference Board consumer confidence, Tuesday
- EIA crude oil inventory report, Wednesday
- China PMI, Wednesday
- Fed Chair Jerome Powell speech, Fed’s Michelle Bowman Lisa Cook speak, Wednesday
- Fed releases its Beige Book, Wednesday
- US wholesale inventories, GDP, Wednesday
- S&P Global PMIs, Thursday
- US construction spending, consumer income, initial jobless claims, ISM Manufacturing, Thursday
- Fed’s Lorie Logan, Michelle Bowman, Michael Barr speak, Thursday
- BOJ’s Haruhiko Kuroda speaks, Thursday
- US unemployment, nonfarm payrolls, Friday
- Fed’s Charles Evans speaks, Friday
- ECB’s Christine Lagarde speaks, Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.7% as of 7:17 a.m. New York time
- Futures on the Nasdaq 100 fell 0.7%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 0.8%
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.7% to $1.0469
- The British pound was little changed at $1.2084
- The Japanese yen rose 0.7% to 138.17 per dollar
Cryptocurrencies
- Bitcoin fell 2.2% to $16,212.61
- Ether fell 3.5% to $1,172.72
Bonds
- The yield on 10-year Treasuries was little changed at 3.67%
- Germany’s 10-year yield advanced three basis points to 2.00%
- Britain’s 10-year yield was little changed at 3.12%
Commodities
- West Texas Intermediate crude fell 2.9% to $74.10 a barrel
- Gold futures rose 0.2% to $1,772.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Brett Miller.
More stories like this are available on bloomberg.com
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