Global stocks and oil prices hit by Beijing lockdown fears

Chinese benchmark Shanghai Composite Index (SHKOMP) fell 5.1% to close at a 22-month low. It was the worst day for the index since February 3, 2020, when the initial coronavirus outbreak first rocked the country’s stock market.
Elsewhere in Hong Kong Hang Seng Index (HSI) fell 3.7%. Japan Nikkei (N225) fell by 1.9%, while in Korea cospi (COSPI) lost 1.7%.
European stocks also opened sharply lower on Monday.. FTSE 100 (UKX) fell 2.1% in London, while in Germany DAKS (DAKS) fell 1.5%. France CAC 40 (CAC40) fell by 2.2%, despite market relief following President Emmanuel Macron’s electoral victory over far-right candidate Marine Le Pen.
The fall in Asian and European markets came after a dismal Friday session for US stocks. The Dow fell about 980 points, or 2.8%. following comments about a likely aggressive interest rate hike by Federal Reserve Chairman Jerome Powell. The S&P 500 and Nasdaq also fell more than 2.5%.

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.

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