Stocks Drop on China Covid Concerns; Dollar rises: markets turn

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(Bloomberg) — Stocks fell on concerns that China could tighten Covid restrictions following a string of reported deaths, with investors seeking refuge in the havens of Treasuries and the dollar.

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Stock futures in the US and Europe fell, while stocks in Hong Kong led to declines in Asia. The Hang Seng index fell as much as 3.4% as investors consider whether the recent rally over a reopening in China is overdone.

The dollar rallied against its Group of 10 counterparts and emerging market currencies. Treasuries gained across the curve. Oil slumped on concerns about declining demand prospects from China.

China saw its first Covid-related death in nearly six months on Saturday and two more were reported on Sunday. Worsening outbreaks across the country are fueling concerns that authorities will once again resort to harsh restrictions to minimize the death toll, though they have recently called for relaxation of quarantine and mass testing rules.

A city near Beijing, rumored to be a test case for ending virus restrictions, has suspended schools, closed universities and asked residents to stay at home for five days.

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“We have seen a very strong rally in Chinese markets recently,” Steve Brice, chief investment officer for wealth management at Standard Chartered Bank, said of expectations of curb easing on Bloomberg Radio. “So investors would be very interested to see what the reaction will be.”

Looking beyond Asia, traders this week will also be looking to the minutes of the Federal Reserve’s most recent policy meeting for more clues about the course of interest rate hikes.

Raphael Bostic, president of the Atlanta Fed, said he favors slowing the pace of rate hikes, with no more than 1 percentage point increase, to try to give the economy a soft landing. Boston Fed President Susan Collins reiterated her view that options are open for the size of the December rate hike, including the possibility of a 75 basis point step.

Kim Forrest, chief investment officer at Bokeh Capital Partners, said investors could look to the Treasury market for clues about the Fed’s rate hike trajectory. The 10-year Treasury yield has fallen sharply since its peak in late October and shows “a softening inflation environment,” she said on Bloomberg Television.

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“The bond market is a little smarter about what the Fed has to do and will do. It told us that the Fed probably won’t be able to raise its rates to 5%, and it won’t need to,” Forrest said.

UBS Global Wealth Management expects the dollar to continue to strengthen through the end of the year as it believes the market is ahead of when the Fed could issue easing signals.

“That’s very clear to us from the Fed speakers we’ve heard so far this week and we think it will be repeated this week,” said Wayne Gordon, executive director of commodities and foreign exchange. on Bloomberg television.

Main events this week:

  • US Chicago Fed National Activity Index, Monday

  • US Richmond Fed Manufacturing Index, Tuesday

  • The OECD publishes Economic Outlook on Tuesday

  • Fed’s Loretta Mester and James Bullard speak Tuesday

  • S&P Global PMIs: US, Euro Area, UK, Wednesday

  • US MBA Mortgage Applications, Durable Goods, First Unemployment Claims, University of Michigan Sentiment, New Home Sales, Wednesday

  • Minutes from the Federal Reserve meeting on November 1 and 2, Wednesday

  • The ECB will publish the report of its policy meeting in October on Thursday

  • The US stock and bond markets are closed for Thanksgiving, Thursday

  • US stock and bond markets close early Friday

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Some of the major moves in markets:

Shares

  • S&P 500 futures fell 0.4% as of 6:57 a.m. in London. The S&P 500 rose 0.5% on Friday

  • Nasdaq 100 futures fell 0.4%. The Nasdaq 100 had changed little

  • Japanese Topix index rose 0.3%

  • Hong Kong’s Hang Seng index fell 1.9%

  • China’s Shanghai Composite Index fell 0.4%

  • The Australian S&P/ASX 200 index fell 0.2%

  • Euro Stoxx 50 futures fell 0.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.5%

  • The euro fell 0.6% to $1.0263

  • The Japanese yen fell 0.3% to 140.79 per dollar

  • The offshore yuan fell 0.5% to 7.1651 per dollar

Cryptocurrencies

  • Bitcoin fell 1.1% to $16,075.38

  • Ether fell 1.2% to USD 1,127.34

Bonds

Raw materials

  • West Texas Intermediate crude fell 0.6% to $79.59 a barrel

  • Spot gold fell 0.3% to $1,745.67 an ounce

This story was created with the help of Bloomberg Automation.

–With help from Ruth Carson.

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