Stocks fell on concern China may have to tighten its Covid curbs further, undermining prospects for global growth. Oil rallied as OPEC+ is seen considering deeper output cuts amid a faltering market.
(Bloomberg) — Stocks fell on concern China may have to tighten its Covid curbs further, undermining prospects for global growth. Oil rallied as OPEC+ is seen considering deeper output cuts amid a faltering market.
The S&P 500 pared its monthly gain as traders also sifted through remarks from US central bank officials. Federal Reserve Bank of St. Louis President James Bullard said markets may be underestimating the chances of higher rates and his New York counterpart John Williams noted policymakers have more work to do to curb inflation. The dollar rose with bond yields.
The bout of investor anxiety around China hit Bitcoin, with the crypto market also digesting BlockFi Inc.’s bankruptcy filling. It was another session of big moves for US-listed Chinese shares, which rebounded from a selloff. Apple Inc. slid as Bloomberg News reported that turmoil at its key manufacturing hub of Zhengzhou is likely to result in a production shortfall of close to 6 million iPhone Pro units this year.
China’s woes complicate expectations of its path to reopening, which — along with speculation about more moderate Fed hikes — had recently buoyed sentiment. Authorities deployed a heavy police presence in Beijing and Shanghai to deter a repeat of the weekend’s demonstrations. Chances are growing of a messy exit from the Covid Zero policy, analysts at Goldman Sachs Group Inc. warned.
“This is going to keep economic activity subdued in the country, and beyond,” said Fawad Razaqzada, market analyst at City Index and Forex.com. “The civil unrest is adding another layer of uncertainty over the economic situation there. It is certainly hurting investor sentiment across the financial markets.”
Alongside the situation in China, Razaqzada noted investors will look ahead to a busy week for economic data and Fed Chair Jerome Powell’s speech Wednesday. Analysts expect him to cement expectations the central bank will slow its pace of hikes next month, while reminding Americans that its fight against inflation will run into 2023.
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Just when the S&P 500 was trying to break above the highs of mid-November, sentiment turned negative, threatening the market’s recent momentum. Timing is most inconvenient here as the index approaches a crucial technical zone in the shape of both the 2022 downtrend and the 200-day moving average. Should the recent bullishness evaporate, short-term tactical bear trades might spark a bout of profit taking.
Stock markets are in for a wild ride next year as they don’t yet reflect the risk of a US recession, according to strategists at Goldman Sachs and Deutsche Bank. Their calls are a warning after equities rallied sharply in the past two months on bets that a peak in inflation will lead to a softening of hawkish central bank policies.
BlackRock Inc.’s Chief Investment Officer Rick Rieder sees a chance for rates volatility to turn lower and provide a necessary, “though perhaps not sufficient” condition for stabilization in risk assets markets.
Stagflation is the key risk for the global economy in 2023, according to investors who said hopes of a rally in markets are premature following this year’s brutal selloff. Almost half of the 388 respondents to the latest MLIV Pulse survey said a scenario where growth continues to slow while inflation remains elevated will dominate globally next year.
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Key events this week:
- 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, 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
- BOJ’s Haruhiko Kuroda speaks, Thursday
- US unemployment, nonfarm payrolls, Friday
- ECB’s Christine Lagarde speaks, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.1% as of 1:14 p.m. New York time
- The Nasdaq 100 fell 0.9%
- The Dow Jones Industrial Average fell 1%
- The MSCI World index fell 1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.3% to $1.0366
- The British pound fell 0.8% to $1.1996
- The Japanese yen rose 0.2% to 138.90 per dollar
Cryptocurrencies
- Bitcoin fell 2.4% to $16,179.16
- Ether fell 3.7% to $1,170.51
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.71%
- Germany’s 10-year yield advanced two basis points to 1.99%
- Britain’s 10-year yield was little changed at 3.13%
Commodities
- West Texas Intermediate crude rose 1.2% to $77.20 a barrel
- Gold futures fell 0.7% to $1,755.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sujata Rao, John Viljoen, Vildana Hajric, Peyton Forte and Isabelle Lee.
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