US stock futures fell, oil prices fell and Chinese stocks suffered their worst sell-off in more than two years as Beijing sticks to its zero-Covid strategy while confronting rising cases in major cities.
Futures for the S&P 500 were down 0.9% on Monday. Contracts for the technology-focused Nasdaq-100 fell 0.8% and futures for the Dow Jones Industrial Average fell 0.9%. The Dow on Friday posted its worst one-day percentage change since October 2020, plunging nearly 1,000 points.
Investors fear China’s strict guidelines to combat Covid-19 will further disrupt global supply chains. Continued disruptions in manufacturing and movement of goods since the pandemic began have helped US inflation hit a four-decade high. New lockdowns in China and Russia’s war on Ukraine are likely to contribute to price increases.
On Monday, the Shanghai Composite and CSI 300 indices fell 5.1% and 4.9%, respectively. These were the largest single-day percentage declines for both benchmarks since February 2020, in the early days of the pandemic.
The offshore yuan fell about 1.1% to trade at around 6.60 per dollar. That was the lowest level since November 2020, according to FactSet. The decline built on a sell-off last week that ended months of relative stability.
“The problem with inflation is that it can be embedded and we’re seeing inflation getting pretty sticky,” said Sebastian Mackay, a multi-asset fund manager at Invesco. “What we are seeing is a combination of the war in Ukraine and the lockdown in China causing supply problems.”
The restriction on movement in China could also dampen oil demand. Brent crude, the international benchmark for oil, fell 4.4% to $101.44 a barrel. Despite the drop, oil prices still remain near historic highs on concerns over disruption to energy markets from the Russian invasion of Ukraine.
Elevated inflation has prompted the Federal Reserve to step up efforts to combat it. Last week, Fed Chair Jerome Powell signaled that the central bank was ready to tighten faster and hinted that it was likely to hike rates by half a percentage point at its May meeting.
Money managers are concerned that the Fed’s aggressive rate hikes could slow economic growth or even push the economy into recession. This could result in the Fed having to raise rates in the short term but lower them in the long term, Mackay said.
The Cboe volatility index — Wall Street’s so-called fear gauge, also known as the VIX — rose to 30, its highest level since mid-March.
The yield on the benchmark 10-year Treasury note fell to 2.822% on Monday from 2.905% on Friday as investors sought safer assets. Yields and prices move in the opposite direction. The Wall Street Journal Dollar Index, which measures the dollar against a basket of currencies, gained 0.5%.
The Dow Jones Industrial Average on Friday posted its largest one-day percentage change since October 2020.
Photo: BRENDAN MCDERMID/REUTERS
Gold futures fell 1.2% to $1,911.20 an ounce. While gold has historically been viewed as a hedge against inflation, the asset pays no yield, making it less attractive than government bonds in times of rising interest rates. The cost of buying dollar-denominated gold also increases for foreign investors as the dollar strengthens.
Whirlpool will report results after the market close.
Twitter shares rose 1.2% in premarket trade after the Wall Street Journal reported that the social media company is in talks to sell itself to Elon Musk and could finalize a deal as early as this week, it said people familiar with the matter.
Bitcoin, the world’s largest cryptocurrency by market value, fell 2.6% from its dollar value as of 5:00 p.m. ET on Sunday to trade at $38,515.85 on Monday. Cryptocurrencies can move in sync with broader market sentiment, with investors buying riskier, more volatile assets when sentiment is strong and selling when it is weaker.
Overseas, the pan-continental Stoxx Europe 600 fell 2%. South Korea’s Kospi slipped 1.8% and Japan’s Nikkei 225 slid 1.9%.
Write to Caitlin Ostroff at [email protected]
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