Stocks, Yuan Fall as China Stokes Growth Concerns: Markets Wrap
- Inflation, monetary tightening, China lockdowns hamper outlook
- Yuan drops as data signal contracting China economic activity
Stocks fell Monday as high inflation, tightening monetary policy and China’s Covid lockdowns deepened concerns about the economic outlook.
Equities dropped in Japan, Australia and South Korea. S&P 500 and Nasdaq 100 futures stabilized after U.S. shares in April posted one of their worst monthly declines since the pandemic roiled markets in 2020.
The stock slide, rising bond yields and dollar strength are tightening financial conditions ahead of looming U.S., U.K. and Australian interest-rate hikes.
Treasuries held a Friday tumble, while bonds in Australia and New Zealand retreated. A dollar gauge was around the highest level since 2020.
The offshore yuan weakened in the wake of data signaling a sharp contraction in Chinese economic activity amid idled factories and snarled supply chains.
The Federal Reserve is expected to raise rates by 50 basis points Wednesday, the largest increase since 2000. The question is how high it needs to go to get runaway inflation under control — and whether the aggressive tightening cycle that lies ahead will trigger a recession.
Bond yields may stay “elevated for the foreseeable future” due to inflation and the Fed’s sharp rate hikes allied with balance-sheet reduction, Seema Shah, chief global strategist at Principal Global Investors, wrote in a note.
Price pressures are being stoked by the elevated cost of commodities ranging from fuel to food, in part due to disruptions from Russia’s war in Ukraine.
Those challenges could intensify: the European Union is set to propose a ban on Russian oil by the end of the year, with restrictions on imports introduced gradually until then, according to people familiar with the matter. Crude oil dipped but remained closed to $104 a barrel.
Markets in China and Hong Kong are shut for holidays. Beijing will close gyms and cinemas over the Labor Day break and Shanghai will keep mobility curbs in place despite falling Covid cases.
Chinese officials last week promised to scale up economic stimulus, which provided some respite for sentiment before Friday’s Wall Street slide.
- Earnings include Airbnb, Airbus, BMW, BNP Paribas, BP, Credit Agricole, Hilton, ING Groep, Pfizer, Shell, Starbucks, Uber, VW
- Reserve Bank of Australia rate decision, Tuesday
- Fed rate decision, briefing with Chair Jerome Powell, Wednesday
- EIA crude oil inventory report, Wednesday
- Bank of England rate decision and briefing, Thursday
- OPEC+ convenes virtually for a regular meeting, Thursday
- U.S. April jobs report, Friday