- Chinese stocks slid as coronavirus cases surged in Beijing
- The US yield curve is nearing its most inverted level since 2000
- The dollar and bonds remained firmer ahead of the Fed’s minutes
- Oil prices are falling again after losing nearly 9% last week
LONDON (Reuters) – Global stocks and oil prices fell on Monday as new restrictions over the coronavirus in China worsened the global economic outlook.
The safe-haven dollar rose, while the US Treasury yield curve remained sharply inverted in a sign that investors remain alert to the risks of a global recession.
The coronavirus outbreak across China is a setback for hopes of an easing of tough restrictions on the pandemic, and is one of the reasons cited for the 10% drop in oil prices last week and Monday’s lackluster opening in European stocks.
Beijing’s most populous district urged residents to stay home on Monday as the number of coronavirus cases soared in the city, while at least one district in Guangzhou was locked down for five days.
This sent major European bourses down (.STOXX), with markets in London, Frankfurt and Paris all opening weaker, while S&P 500 and Nasdaq futures fell 0.5%.
MSCI’s broadest index of world stocks (.MIWD00000PUS) fell 0.5%.
Thursday’s US Thanksgiving holiday combined with the distraction of the FIFA World Cup could lead to thin trades, while Black Friday sales will provide insight into consumer performance and the outlook for retail stocks.
Fiona Cincotta, senior market analyst at City Index in London, said the risk-off sentiment is starting the week.
“There is a demand for safe havens such as the dollar and riskier assets in the back,” she added.
“The other thing we have to keep in mind is that we’ve had a strong rally, so there is a sense of the need to assess where we are.”
The dollar rose 0.9% against the Japanese yen at 141.67, its highest level since November 11th. The pound and the euro fell 0.8% each, off last week’s 18-week highs.
The Chinese yuan fell to a 10-day low against the dollar on Monday, as worsening COVID-19 infection numbers and new movement restrictions dampened market sentiment.
price to stagnate
Atlanta Federal Reserve Chairman Rafael Bostick said on Saturday he was willing to concede a half-point rate hike in December, but also emphasized that rates will likely remain elevated for longer than markets expect.
Bond markets believe that the Fed will tighten policy too much and push the economy into recession. The Treasury yield curve, measured as the gap between the 2- and 10-year bond yields, is around -70 basis points and is close to the level last seen in 2000.
The two-year Treasury yield rose 3 basis points on the day, at 4.53%, while the 10-year yield rose 2 basis points, at 3.84%.
At least four Fed officials are scheduled to speak this week, ahead of Chairman Jerome Powell’s speech on November 30 that will set interest rate expectations at the December policy meeting.
The central banks of Sweden and New Zealand are expected to raise interest rates this week, possibly by 75 basis points.
The Fed’s chorus helped the dollar stabilize after its recent sell-off, although speculative positions in futures turned short in the currency for the first time since mid-2021.
“Given how far US bond yields and the dollar have fallen in the past two weeks, we think there is a good chance of a recovery if the Fed’s minutes are in line with the recent hawkish language from members,” said Jonas Goltermann. Chief Market Economist at Capital Economics.
Meanwhile, cryptocurrency turmoil continued with FTX, which filed for US bankruptcy court protection, saying it owed its 50 largest creditors nearly $3.1 billion.
In commodities markets, gold fell 0.7% to $1,737 an ounce, after falling 1.2% last week.
Oil futures failed to find a floor after last week’s slide that saw Brent crude fall nearly 9%.
Brent was last down 1%, to $86.71, while US crude futures lost 0.5%, to $79.71 a barrel.
Reporting from Wayne Cole. Editing by Kenneth Maxwell
Our Standards: The Thomson Reuters Trust Principles.
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