US Stocks Drop on China Covid Fears; Dollar Gains: Markets Wrap

(Bloomberg) — US stocks dropped amid concerns about the growth outlook in the US as the Federal Reserve vows to be persistent to fight inflation. Investors are also seeking shelter in the dollar as worries mount that China may tighten Covid curbs after a string of reported deaths.

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The S&P 500 and Nasdaq 100 fell. Chinese stocks listed in the US retreated as traders assessed whether China’s reopening could see setbacks. Walt Disney Co. soared after the company surprised by bringing back former leader Bob Iger as chief executive officer.

The dollar climbed against its Group of 10 counterparts and emerging market currencies. Treasures rose. Oil sank on the concern of a weakening demand outlook from China.

China saw its first Covid-related death in almost six months on Saturday and another two were reported on Sunday. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions. A city near Beijing that was rumored to be a test case for the ending of virus restrictions has suspended schools, locked down universities and asked residents to stay at home for five days.

“Not only would fresh lockdowns in major cities take a sledgehammer to growth into year-end, but it could also complicate any plans that are being put in place to soften the zero-Covid policy next year,” said Craig Erlam, senior market analyst. at Oanda. “We’re back into uncertain territory which could slow the recovery in stock markets.”

Traders this week will also be looking to minutes of the most recent Federal Reserve policy meeting for more clues on the course of rate hikes.

“That November Fed meeting feels like a long time ago, but it could be an opportunity to somewhat hawkishly push back on markets,” Veronica Clark, economist at Citigroup, said Monday on Bloomberg Television. “For the Fed right now, if we do get some slowing in inflation — which it seems like we might — but you’re not seeing it in the slowing of service inflation, that’s related to a tight labor market. You do need to see that loosening in the labor market data.”

Atlanta Fed President Raphael Bostic said he favors slowing the pace of interest rate increases, with no more than 1 percentage point more hikes, to try to ensure the economy has a soft landing. Boston Fed President Susan Collins reiterated her view that options are open for the size of the December interest-rate increase, including the possibility of a 75-based-point move.

On the outlook for stocks, Goldman Sachs Group Inc. strategists said that investors hoping for a better year in 2023 would be disappointed, with the bear market phase not yet over.

“The conditions that are typically consistent with an equity trou have not yet been reached,” strategists including Peter Oppenheimer and Sharon Bell wrote in a note on Monday. They said that a peak in interest rates and lower valuations reflecting recession are necessary before any sustained stock-market recovery can happen.

Key events this week:

  • US Richmond Fed manufacturing index, Tuesday

  • OECD releases Economic Outlook, 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, initial jobless claims, University of Michigan sentiment, new home sales, Wednesday

  • Minutes of the Federal Reserve’s Nov. 1-2 meeting, Wednesday

  • ECB publishes the account of its October policy meeting, Thursday

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

  • US stock and bond markets close early, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.3% as of 9:30 am New York time

  • The Nasdaq 100 fell 0.4%

  • The Dow Jones Industrial Average rose 0.2%

  • The Stoxx Europe 600 was little changed

  • The MSCI World Index rose 0.6%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.5%

  • The euro fell 0.7% to $1.0251

  • The British pound fell 0.6% to $1.1823

  • The Japanese yen fell 0.7% to 141.38 per dollar

Cryptocurrencies

  • Bitcoin fell 0.4% to $16,184.68

  • Ether fell 0.4% to $1,136.75

Bonds

  • The yield on 10-year treasuries declined six basis points to 3.77%.

  • Germany’s 10-year yield declined six basis points to 1.96%.

  • Britain’s 10-year yield declined five basis points to 3.19%

Commodities

  • West Texas Intermediate crude fell 2.3% to $78.25 a barrel

  • Gold futures fell 0.4% to $1,762.30 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Tassia Sipahutar, Robert Brand, Peyton Forte, Isabelle Lee and Brett Miller.

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