China lockdowns, rate hike fears batter stock markets

HONG KONG - Stock markets sank Monday on growing concerns that lockdowns in China aimed at fighting a worsening Covid outbreak could threaten the country's economy and global supply chains.

The losses extended a sell-off across the world last week fuelled by comments from Federal Reserve boss Jerome Powell indicating officials will hike interest rates by half a point next month and possibly several times more by year's end.

China's struggle to get a grip on a Covid outbreak that has forced Shanghai -- the country's biggest city -- into lockdown and dealing a blow to demand.

Officials in the finance hub reported 51 deaths Monday, its highest daily toll despite weeks of strict containment measures, while Beijing warned of a "grim" situation as infections rise.

The lockdowns will "cause a logistical problem that's going to affect not just China but also the rest of the world", OANDA's Jeffrey Halley told Bloomberg TV.

Officials' determination to continue with a zero-Covid policy as well as a lack of government stimulus, "that all points to lower China stocks and we are going to see a weaker yuan going forward".

Investors were already fleeing risk assets as they become worried that the Fed tightening -- to fight inflation at more than 40-year highs -- will knock the pandemic economic recovery off course and dent companies' bottom line.

With earnings season under way, a close eye is being kept on what firms say about the impact on and the outlook for business in light of inflation, forecast rate hikes, supply chain snarls and the Ukraine war.

"Having spent most of the last few weeks trying to put to one side concerns about events in eastern Europe, a slowdown in China, and the increasing risks of what inflation might do to company earnings, as well as consumer incomes, the final straw appears to be a concern about the prospect of a policy mistake by central banks, and a possible recession by the end of the year," said Michael Hewson of CMC Markets.

And Geir Lode, at Federated Hermes, added: "There has been little to avert the investor pessimism as inflation and interest rate expectations start to bite.

"In particular due to the uncertainty of the macro environment, expectations are low with regard to forward estimates and guidance, building on lowered expectations from the previous quarter."

All three main indexes on Wall Street ended more than two percent down Friday, and Asia followed suit with hefty losses.

Hong Kong and Shanghai led the selling, with both markets suffering hefty losses, while Tokyo, Seoul, Singapore, Taipei, Mumbai, Bangkok and Jakarta were also deep in the red.

London, Paris and Frankfurt were sharply lower in the morning.

Sydney and Wellington were closed for holidays.

The hit to demand for energy in China also dragged on crude. WTI fell below $100 a barrel, even as the war in Ukraine hits supplies of the black gold owing to embargoes on Russian exports.

"Oil is rerating lower due to the China consumption hit while the Federal Reserve is raising interest rates to slow down the US economy," said Stephen Innes at SPI Asset Management.

"Those are two gusty headwinds suggesting some oil bulls will give way to recession fears and demand devastation."

On currency markets, the euro was unable to hold a brief rally that came on the back of Emmanuel Macron's victory in France's presidential election, seeing off far-right challenger Marine Le Pen.

Agence France-Presse

Oil stays above $120 per barrel ahead of NATO Russia-Ukraine summit

LONDON - World share markets were choppy on Thursday as the Russia-Ukraine war kept oil above $120 a barrel, while "stagflation" worries rose on renewed talk of aggressive US interest rates hikes and slowing growth.

Europe's main stock indexes barely budged and government bond yields edged up toward multi-year highs hit earlier in the week as March PMI data came in reassuringly robust. 

Focus was otherwise on a Thursday special NATO summit in Brussels, which US President Joe Biden will attend, to discuss further responses to Russia's month-old invasion of Ukraine, which Moscow calls a "special military operation". 

Rabobank's head of macro strategy, Elwin de Groot, said markets would be watching what emerges closely, especially how unified NATO members remain and what Biden can offer European countries to help wean themselves off Russian gas.

"The NATO meeting is certainly important," de Groot said. "At the minimum you would expect the members to come up with preparations for a possible further escalation in the Ukraine war."

Wall Street futures were up a solid 0.6 percent ahead of trading there, but the mood seemed changeable.

MSCI's broadest index of Asia-Pacific shares outside Japan recouped some of its early losses overnight but ended down 0.6 percent after more falls in China and Hong Kong.

Japan's Nikkei bucked the trend, rising 0.25 percent to a nine-week high as its exporters cheered the yen falling to its lowest against the dollar since 2015. 

At 1000 GMT, the dollar was up 0.4 percent versus the yen, at 121.65, with expectations that the Bank of Japan will be far behind other top central banks in raising interest rates.

HAWKISH

Driving some of the volatility, Federal Reserve policymakers on Wednesday signaled they stood ready to take more aggressive action to bring down decades-high inflation, including a possible half-percentage-point rate hike at the next policy meeting in May. 

Those signals pushed all three main US share benchmarks 1 percent lower overnight. 

"The sharp hawkish repricing of Fed rate hike expectations has mainly benefited the US dollar against low yielding currencies whose own domestic central banks are expected to lag well behind the Fed in tightening policy," MUFG currency analyst Lee Hardman wrote in a note to clients.

Oil and gas markets also remained hot amid the geopolitical uncertainty.

Russian President Vladimir Putin said on Wednesday that Moscow would seek payment in roubles for gas sold to "unfriendly" countries, jolting energy markets, although Italy's President Mario Draghi said it planned to keep paying in euros. 

Brent futures were little changed at $121.67 a barrel and US West Texas Intermediate futures fell 41 cents, or 0.35 percent, to $114.5 a barrel

The bond market was starting to shift again with the yield on benchmark 10-year Treasury notes up at 2.37 percent and German bunds creeping over 0.52 percent.

"Inflation is really the big driver," Rabobank's de Groot said, adding that it was also behind falling consumer confidence.

EU leaders are expected to agree at a two-day summit starting on Thursday to jointly buy gas, as they seek to cut reliance on Russian fuels and build a buffer against supply shocks. But the bloc remains unlikely to sanction Russian oil and gas. 

Gold was slightly lower at $1,942.9 per ounce.

(Reporting by Marc Jones; Editing by William Mallard)

-reuters-

ANALYSIS | Can the EU survive Brexit?

BRUSSELS, Belgium -- Britain's vote to become the first country to leave the EU, as projected by national media, is a shattering blow that threatens the survival of the post-war European project, officials and analysts said.

The loss of one of its biggest members will at the very least force major changes on an embattled bloc already struggling to deal with growing populism, a migration crisis and economic woes.

In the long-run, "Brexit" may lead to other countries holding referendums, a far looser union, and possibly even the disintegration of a grouping set up 60 years ago to bring security and prosperity after World War II.

EU President Donald Tusk warned in the run-up to the vote that Brexit could lead to the "destruction of not only the EU but also of Western political civilization."

With Europe facing a resurgent Russia and the threat of terrorism, Tusk said "our enemies ... will open a bottle of champagne if the result of referendum is negative for us."

In a less doom-laden assessment, European Commission Chief Jean-Claude Juncker said last week that the EU was not "in danger of death" from a Brexit but that it would have to learn lessons.

'Very serious blow'

Chris Bickerton, a lecturer at Britain's Cambridge University and author of "The European Union: A Citizen's Guide," said it was a "very serious blow" but not terminal, given the "core role" of the EU in much of European political life.

But he added that it would probably drift towards a "looser, ad hoc" union.

"I don't think it would suddenly disappear but over the longer term, we might see it slowly decline and become something different," he told AFP.

The next steps for the EU would be difficult, he added.

"We are very much in uncharted territory," he said. "I don't think anyone really thought Brexit was really likely, certainly not when they were negotiating with Cameron, otherwise they would have done a very different deal."

In the immediate aftermath of the British vote, seven years of potentially bitter divorce negotiations between Brussels and London loom.

The remaining EU countries will likely be keen to move ahead. France and Germany, the main EU heavyweights, have already been working on a joint plan for the future.

But with Berlin and Paris at loggerheads over future integration of the eurozone, any plan is likely to be a modest affair that deals only with issues such as security and defense.

Even without Britain in the club, the drift away from "ever closer union" and federalism is likely to increase, with growing talk of a "two-speed Europe" that allows states opt-outs from key rules.

One major step could be making membership of the euro non-compulsory, which would help Poland, which appears to have no intention of joining the single currency but is officially meant to.

Domino effect?
The main fear in many European capitals is that either way, the result could trigger a domino effect of referendums in other countries.

French far-right leader Marine Le Pen on Tuesday urged all EU states to follow Britain's example, and eurosxeptics in the Netherlands, Denmark and Sweden have made similar calls for referendums.

Vivien Pertusot, Brussels-based analyst with the French Institute of International Relations, said the EU was likely to survive but be weakened.

"Institutions rarely die," he told AFP. "Maybe there will not be disintegration, but a loss of relevance. The EU will lose, bit by bit, its centrality for all the most political projects."

The danger for the EU is that even after it makes changes following the British referendum, it will still not be able to quell the forces of history tearing it apart.

"The EU is in a negative spiral," Janis Emmanouilidis, director of studies at Brussels-based think tank European Policy Centre, told AFP.

The question of what could replace the EU if it does collapse is even more vexed.

"It might sound as if yes, this story has ended, a new one has begun, but that's not easy. Especially after the experience of failure," said Emmanouilidis.

source: interaksyon.com