Concerns about worsening Covid-19 situation in China intensify to downward momentum. On Monday, Dow futures fell 305 points, or 0.9%, while S&P 500 and Nasdaq futures fell 1%.
Beijing, China’s capital of 21 million, began mass testing and shut down housing estates over the weekend, raising fears that stricter restrictions could soon be put in place in line with other Chinese cities.
“While parts of China have been under lockdown longer than Shanghai, Omicron’s arrival in Beijing will be an ominous development,” Jeffrey Halley, senior market strategist at Oanda, wrote on Monday.
“China is the second largest economy in the world and shows no signs of intending to live with the virus,” he said. “With that in mind, a likely pressure valve would be the destruction of China’s export machine and the erosion of consumer confidence.”
Oil prices tumbled on Monday as fears of faster U.S. rate hikes and a slowdown in China weighed on sentiment. Futures for US crude and Brent crude, the international benchmark, fell more than 4%.
“China seems to be the elephant in the room, and markets believe that a slowdown in China could significantly change the balance of supply and demand in international markets,” Halley said.
The need to contain the outbreak in Beijing comes as the number of cases in Shanghai continues to rise. The quarantine in Shanghai has already forced many factories to halt production and exacerbated delivery delays, threatening to deal a severe blow to its vast economy and strain global supply chains.
Shanghai reported more than 19,000 new cases and 51 deaths on Sunday.