Lockdown fears in China weighed on Asian stocks and crude oil prices

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

HONG KONG (China) (AFP) – Asian markets and oil prices fell on Monday as a new outbreak of the Covid-19 virus in Shanghai raised fears of another painful economic shutdown in China’s largest city.

The news came after a forecast-beating US jobs report last week indicated that the world’s largest economy is so far adjusting to the Federal Reserve’s rate hike, giving it room for more as it battles rising inflation.

Traders are also watching developments in Washington as President Joe Biden considers removing some tariffs under Donald Trump on hundreds of billions of dollars in Chinese goods.

Shanghai recorded more than 120 cases of the virus over the weekend, after it saw its first case of the highly contagious Omicron strain BA.5, forcing officials to launch another mass testing campaign.

With China focused on its strategy to eradicate the disease, there are growing fears that authorities will return to another painful lockdown, as Shanghai residents emerged from just two months of confinement in June.

New infections were also detected in other parts of the country, including Beijing.

The data this week will provide a fresh update on the economic impact of these measures, as well as similarly stringent controls in Beijing.

It raised the prospect of closing recent sell-offs in Hong Kong and Shanghai, where Chinese tech companies have also taken a beating after authorities fined giants Tencent and Alibaba for not properly reporting previous deals.

Operators of listed casinos in Hong Kong also fell sharply after officials in Macau initiated a week-long closure to curb the worst outbreak of the coronavirus.

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

However, Tokyo rose as traders welcomed Japan’s ruling bloc to a solid victory in Sunday’s upper house election, which was held days after the assassination of former Prime Minister Shinzo Abe.

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

London, Paris and Frankfurt were all sharply lower in the morning.

– Federal Reserve ‘must be firm’ –
The weak start to the week came after a tepid lead from Wall Street, as the strong jobs reading raised bets for more big Fed rate hikes after officials said the economy was strong enough to sustain them.

“The resilience of the US labor market, with an unemployment rate of 3.6%, as well as job markets elsewhere, helps provide a compelling narrative for those who think recession fears are exaggerated,” said Michael Hewson, analyst at CMC Markets.

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

Policymakers said they are determined to bring inflation down from its highest levels in four decades, even if that means hurting growth.

On Friday, New York Federal Reserve Chairman John Williams reiterated his resolve, saying in a speech: “Inflation is too high, and is the number one risk to public health and the stability of a well-functioning economy.

“I want to be clear: this is not an easy task. We must be firm, and we cannot fall short.”

Concerns about another shock to the Chinese economy from potential shutdowns also weakened oil markets as concerns about demand damage outweighed persistent concerns about supply shortages.

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

“Covid numbers are going up again,” said Stephen Innes of SBI Asset Management.

“Although the potential demand impact of a recession continues to weigh on sentiment, the prevailing view, at least for the time being, is that the long-term structural issues facing the oil market will support prices.”

Investors will be watching Biden’s visit this week to Saudi Arabia, where the crude oil giant is expected to push up production to make up for lost production due to sanctions against Russia.

– Key numbers around 0810 GMT –
TOKYO – Nikkei 225: up 1.1 percent to 26812.80 (close)

Hong Kong – Hang Seng Index: down 2.8 percent at 21124.20 (close)

Shanghai – Composite: down 1.3 per cent at 3,313.58 (close)

London – FTSE 100: down 1.2 per cent at 7113.73

West Texas Intermediate: a decline of 1.9 percent at $102.79 a barrel

Brent North Sea crude: down 1.7 percent to $105.33 a barrel

EUR/USD: down at 1.0123 from 1.0183 on Friday

Pound/dollar: down at 1.1967 from 1.2034

Euro / Pound: It rose at 84.60 pence from 84.59 pence

Dollar / yen: rose to 136.80 yen from 136.10 yen

New York – Dow: down 0.2 percent at 31338.15


© AFP

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