Chinese lockdown fears hit Asian stocks and oil prices

A health worker (right) takes a swab from a woman for Covid-19 testing on a street near a residential area in Jing’an District in Shanghai, July 5, 2022. (Photo by Hector RETAMAL/AFP)

HONG KONG, China (AFP) — Asian markets and oil prices tumbled on Monday as a new Covid outbreak in Shanghai fanned fears of another economically painful lockdown in China’s largest city.

The news comes after last week’s U.S. jobs report showed that the world’s largest economy is still coping with an interest rate hike by the Federal Reserve, giving it room for more as it fights rising inflation.

Traders are also keeping an eye on developments in Washington as President Joe Biden considers lifting some Donald Trump-era tariffs on hundreds of billions of dollars worth of Chinese goods.

More than 120 cases of the virus were reported in Shanghai over the weekend, where the first case of the highly contagious BA.5 Omicron strain was reported, prompting officials to launch yet another mass testing.

With China fixated on its coronavirus strategy to eradicate the disease, there is growing concern that the authorities will return to yet another painful lockdown as Shanghai residents only emerged from a two-month detention in June.

New infections have also been found in other parts of the country, including Beijing.

This week’s data will provide an update on the economic impact of these measures, as well as similar stringent controls in Beijing.

The prospect of a new lockdown has triggered sell-offs in Hong Kong and Shanghai, with Chinese tech companies also hurt after authorities fined giants Tencent and Alibaba for failing to report past deals.

Casino operators registered in Hong Kong also plummeted after officials in Macau imposed a week-long quarantine to curb the worst of the coronavirus outbreak.

There were also casualties in Sydney, Seoul, Taipei, Manila, Mumbai, Jakarta and Wellington.

However, Tokyo rose as traders cheered for Japan’s ruling bloc to secure a strong victory in Sunday’s upper house elections, days after the assassination of former Prime Minister Shinzo Abe.

The result should provide the government with some stability, and there were also hopes for a cabinet reshuffle and an economic stimulus.

London, Paris and Frankfurt fell sharply in the morning.

Fed ‘needs to be decisive’ –
A weak start to the week followed a sluggish lead on Wall Street, where strong employment data raised bets on further significant Fed rate hikes after officials said the economy was strong enough to weather them.

“The strength of the 3.6 percent U.S. labor market, as well as other labor markets, is helping to convince those who see recession fears as overblown,” said Michael Hewson, an analyst at CMC Markets.

The central bank is expected to announce a second consecutive 0.75 percentage point increase at its next meeting this month, while further significant increases are also expected before the end of the year.

Policymakers have said they are determined to bring inflation down from a four-year high, even if it hurts growth.

On Friday, New York Fed President John Williams reiterated his resolve, saying in a speech: “Inflation is sky-high and the number one danger to the overall health and stability of a well-functioning economy.

“I want to be clear: this is not an easy task. We must be determined and we cannot fail.”

Fears of another shock to the Chinese economy due to possible shutdowns also weighed on oil markets, as fears of falling demand outweighed current concerns about limited supplies.

However, there is an opinion that prices will remain elevated for the time being.

“Covid numbers are on the rise again,” said Stephen Innes of SPI Asset Management.

“While the possible impact of the recession on demand continues to weigh on sentiment, the prevailing view, at least for now, is that long-term structural problems facing the oil market will support prices.”

Investors will be keeping an eye on Biden’s visit this week to Saudi Arabia, where he is expected to push the oil giant to increase production to make up for production losses due to sanctions against Russia.

– Key figures around 08:10 GMT –
Tokyo – Nikkei 225: up 1.1% to 26,812.80 (close)

Hong Kong – Hang Seng Index: DOWN 2.8% to 21,124.20 (close)

Shanghai – Composite: DOWN 1.3% to 3313.58 (close)

London – FTSE 100: DOWN 1.2% to 7,113.73.

West Texas Intermediate: REDUCED 1.9% to $102.79 per barrel

Brent North Sea Oil: REDUCED 1.7% to $105.33 per barrel

EUR/USD: DOWN to 1.0123 from 1.0183 on Friday

Pound/Dollar: DOWN to 1.1967 from 1.2034

EUR/GBP: Up 84.60p from 84.59p.

Dollar/yen: above 136.80 yen from 136.10 yen.

New York-Dow: DOWN 0.2% to 31,338.15

© Agence France-Presse