Asia shares, oil prices skid on China COVID outbreaks

Sydney, Nov. 21 (BNA): Asian stock markets and oil prices slumped as investors worried about the economic fallout from new COVID-19 restrictions in China led to risk aversion on bonds and the dollar.

Beijing’s most populous district urged residents to stay home as the number of coronavirus cases soared in the city, while at least one district in Guangzhou was locked down for five days, Reuters reported.

The outbreak of the disease across the country was a setback to hopes for an early easing of the strict restrictions of the pandemic, and is one of the reasons cited for the 10% plunge in oil prices last week.

Chinese blue chips fell 1.3% in early trade, sending MSCI’s broadest index of Asia-Pacific shares outside Japan down 1.4%. Japan’s Nikkei was flat and South Korea lost 1.2%.

S&P 500 futures were down 0.3%, while Nasdaq futures were down 0.2%. EUROSTOXX 50 futures lost 0.4% and FTSE futures lost 0.2%.

Thursday’s Thanksgiving holiday in the US coupled with the distraction of the FIFA World Cup could lead to thin trades, while Black Friday sales will provide insight into consumer performance and the outlook for retail stocks.

Futures indicate an 80% chance of a 50bp rally to 4.25-4.5% and rates peak around 5.0-5.25%. They also cut interest rates late next year.

The central banks of Sweden and New Zealand are expected to raise their rates this week, possibly by a whopping 75 basis points.

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Bond markets clearly believe that the Fed is going to tighten hard and send the economy into a recession as the yield curve is the most inverted in 40 years.

The 10-year yield fell to 3.79%, leaving 72 basis points less than two-years-old.

The Fed’s chorus helped the dollar stabilize after its recent sell-off, although speculative positions in futures turned short in the currency for the first time since mid-2021.

The dollar was little changed at 140.36 yen, after last week’s rebound from 137.67 yen. The euro fell 0.2% to $1.0298, well below its four-month high of $1.1481.

The US Dollar Index rose 0.25% to 107,180, off last week’s lows of 105,300.

Meanwhile, turmoil in cryptocurrencies continued unabated with FTX, which filed for US bankruptcy court protection, saying it owed its 50 largest creditors nearly $3.1 billion.

In commodities markets, gold was slightly lower at $1,747 an ounce, after falling 1.2% last week.

Oil futures failed to find a floor after last week’s slide that saw Brent lose 9% and WTI nearly 10%.

Brent lost another 98 cents to $86.64, while US crude for January lost 90 cents to $79.18 a barrel.

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