by LONDON (Reuters) – Global stock and oil prices fell on Monday as new COVID-19 restrictions in China heightened concerns about the global economic outlook.
The safe-haven dollar rallied while the US Treasury yield curve remained deeply inverted, suggesting investors remain vigilant amid global recession risks.
Coronavirus outbreaks across China are a blow to hopes of an easing of the strict pandemic restrictions, a reason cited for a 10% drop in oil prices last week and the lackluster open of European stocks on Monday.
Beijing’s most populous district urged residents to stay home Monday as the city’s COVID case numbers soared, while at least one district in Guangzhou entered a five-day lockdown.
This sent major European stock exchanges (.STOXX) lower, with markets in London, Frankfurt and Paris all opening weaker, while S&P 500 futures and Nasdaq futures fell 0.5%.
MSCI’s broadest stock index (.MIWD00000PUS) fell 0.5%.
The US Thanksgiving holiday on Thursday coupled with the Soccer World Cup distraction could lead to weak trading, while Black Friday sales will provide insight into consumer trends and the outlook for retail stocks.
A risk-off sentiment is starting 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 retreat,” she added.
“The other thing to keep in mind is that we’ve had a strong rally so there’s a feeling we need to take stock of where we are.”
The dollar rose 0.9% against the Japanese yen to 141.67, its highest since November 11. The pound and euro each fell 0.8%, sliding off last week’s 18-week highs.
China’s yuan fell to a 10-day low against the dollar on Monday as COVID-19 infection numbers worsened and fresh mobility restrictions hit market sentiment.
RECESSION PRICES
Atlanta Federal Reserve Chairman Raphael Bostic said Saturday he was ready to back down on a half-point rate hike in December, but also stressed that rates were likely to stay high longer than markets are expecting.
Fixed income markets suspect the Fed will tighten policy too far and push the economy into recession. The US Treasury yield curve, as measured by the gap between the yields on 2- and 10-year bonds, is around -70 basis points (bps) and is nearing levels last seen in 2000
Two-year government bond yields were last up 3 basis points to 4.53% on the day, while 10-year government bond yields were up 2 basis points to 3.84%.
At least four Fed officials will address this week ahead of a Nov. 30 speech by Chair Jerome Powell that will define the outlook for interest rates at the December monetary policy meeting.
Central banks in Sweden and New Zealand are expected to hike rates this week, perhaps by 75 basis points.
The Fed chorus has helped the dollar stabilize after its recent sharp sell-off, although speculative positioning in futures has resulted in a net short position in the currency for the first time since mid-2021.
“Given how far US bond yields and the dollar have fallen in recent weeks, we believe there is a good chance they will recover if Fed minutes match recent hawkish language from members.” , said Jonas Goltermann, a senior markets economist at Capital Economics.
Meanwhile, the turmoil in cryptocurrencies continued with the FTX exchange filing for protection from a US bankruptcy court, saying it owes its top 50 creditors nearly $3.1 billion.
In the commodity markets, gold slipped 0.7% to $1,737 an ounce after falling 1.2% last week.
Oil futures found no bottom after last week’s defeat that saw Brent crude plummet nearly 9%.
Brent was last down 1% to $86.71, while US crude futures were down 0.5% to $79.71 a barrel.
Reporting by Wayne Cole; Editing by Kenneth Maxwell
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