Oil prices and Chinese shares fell after Beijing imposed massive Covid-19 lockdowns, while U.S. stock futures rose ahead of the start of the Fed’s rate hike cycle.
Futures tied to the S&P 500 and the Dow Jones Industrial Average rose 0.2% each on Tuesday, while high-tech Nasdaq-100 futures rose 0.4%. The S&P 500 started the week with modest losses on Monday.
Oil prices have fallen below $100 a barrel again, wiping out much of the price spike since Russia’s invasion of Ukraine. US benchmark West Texas Intermediate fell more than 8% to $94.69 a barrel. Brent crude, the international benchmark, fell more than 7% to $98.59 a barrel.
Chinese stocks continued to fall, extending their recent decline driven by rising domestic Covid-19 cases, renewed regulatory pressure from Beijing, and the threat of US delisting. The government said on Tuesday that daily cases in China have more than doubled, with the outbreak causing lockdowns in major cities and an entire province.
Mainland China’s CSI 300 blue-chip stock index fell 4.6%, recording its lowest close since June 2020. In Hong Kong, the Hang Seng slipped 5.7% to close at a six-year low as major tech and financial stocks fell. .
Slashing travel and retail spending in China, coupled with disruptions to supply chains, adds another layer of complexity to a global economy that is already facing a war in Ukraine and the highest inflation in a generation.
“The headlines that Covid is circulating across China is another factor that is fueling uncertainty in global markets as it heightens concerns about supply chain disruptions,” said David Donabedian, chief investment officer at CIBC Private Wealth.
Before the first call, Coupa Software fell more than 30% after earnings forecasts came in below analysts’ expectations. Energy companies have also come under pressure from falling oil prices. Occidental Petroleum, Marathon Oil and Halliburton fell by at least 4%.
Fed officials are set to meet on Tuesday to kick off a two-day policy meeting that comes amid 40 years of inflation and fears that Russia’s invasion of Ukraine could hurt global economic growth. While the Fed is expected to stick to its plans for a rate hike cycle starting with a quarter percentage point hike on Wednesday, investors are seeking clarity on how the war in Ukraine could affect the pace of future tightening.
The Federal Reserve’s primary tool for managing the economy is changing the federal funds rate, which can affect not only the cost of borrowing for consumers, but broader decisions of companies, such as how many people to hire. The WSJ explains how the Fed manipulates this single rate to drive the entire economy. Illustration: Jacob Reynolds
US Treasury yields slipped ahead of the meeting, climbing on Monday to their highest level in more than 2.5 years. The benchmark 10-year yield fell to 2.135% from 2.139% on Monday. Bond yields and prices move in opposite directions.
Investors are concerned that the conflict could lead to even higher inflation due to the cutting off of significant oil and gas supplies from Russia and the reduction in the supply of basic metals and grains. Investors fear a shock could slow growth in the global economy as it weathers the effects of the Covid-19 lockdown.
Traders work on the floor of the New York Stock Exchange.
Photo: BRENDAN MACDERMID/REUTERS
“The main concern for investors is that an invasion of Ukraine is fueling inflation, which has already been a concern, but also casts doubt on economic growth prospects,” Mr. Donabedyan said. “It’s a double whammy in terms of increased uncertainty.”
Compounding this uncertainty is the threat of escalation in Ukraine, where recent diplomatic efforts to end hostilities have shown little sign of progress. According to Mr. Donabedyan, investors are increasingly concerned that the conflict, which many considered impossible just a few weeks ago, may now extend beyond the borders of Ukraine. In addition, reports that China is considering providing military assistance to Moscow raise the risk that Western sanctions could target Beijing, he said.
“It would open a whole new Pandora’s box,” he said.
Investors are also awaiting producer price data due at 8:30 am ET, which should provide some clues as to whether producers are absorbing or passing on higher production costs. Economists polled by The Wall Street Journal expect producer prices to continue rising in February, but at a more moderate pace.
Elsewhere, the Stoxx Europe 600 fell 0.8%, led by the commodity and energy sectors. In Japan, the Nikkei 225 rose 0.2%.
—Quentin Webb contributed to this article.
Write to Will Horner at [email protected]
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