Global stocks opened the week lower and the US dollar rallied, as rising Covid-19 cases in China dented investors’ hopes that the country might be about to loosen its tough virus control measures.
The regional Stoxx Europe 600 fell 0.2 per cent in early trading on Monday and London’s FTSE sank 0.5 per cent. Contracts tracking Wall Street’s benchmark S&P 500 fell 0.4 per cent while those tracking the tech-heavy Nasdaq 100 fell 0.3 per cent.
US equities ticked higher on Friday despite hawkish comments from James Bullard, president of the St Louis branch of the Federal Reserve, who warned that interest rates could yet climb to 5.25 per cent, higher than market expectations.
The US dollar index, which tracks the currency against six others, added 0.5 per cent on Monday, extending last week’s rally as investors digested Bullard’s comments.
Speculation that the greenback might have peaked in late September had been fuelled by October’s lower than expected US inflation figure and hopes that China may be about to relax its strict zero-Covid stance.
Investors were less optimistic on the latter this week, however, after provincial capitals Shijiazhuang and Guangzhou rolled out tougher Covid controls to limit cases. Hong Kong’s chief executive John Lee meanwhile tested positive just days after interacting with President Xi Jinping at the Asia-Pacific Economic Cooperation forum in Bangkok.
Hong Kong’s Hang Seng index fell as much as 1.9 per cent, while China’s CSI 300 dropped 0.8 per cent. Elsewhere, Japan’s Topix rose 0.3 per cent and South Korea’s Kospi shed 0.8 per cent.
Oil prices fell sharply last week and slipped further on Monday, with Brent crude, the international benchmark, down 0.9 per cent to $86.90 a barrel. US marker West Texas Intermediate last week lost about 10 per cent and dropped another 0.7 per cent on Monday to hit $79.50.
Mark Haefele, chief investment officer at UBS Global Wealth Management, nonetheless expects Brent crude prices to return to $110 a barrel in 2023 as supply tightens and demand continues to rise.
“Opec is scaling back its production this month, with crude exports so far in November down more than 2mn barrels per day versus October,” Haefele said. The upcoming European ban on Russian crude could also limit output.
In government bond markets, the two-year Treasury yield, which is particularly sensitive to interest rate expectations, rose 0.01 percentage points to 4.52 per cent, while the benchmark 10-year Treasury yield fell 0.01 percentage points to 3.80 per cent. Yields fall as prices rise.