Asia shares, oil prices skid on China COVID outbreaks

Publish November 21, 2022
oil and gas

Sydney, Nov. 21 (BNA): Asian share markets and oil prices slipped as investors fretted about the economic fallout from fresh COVID-19 restrictions in China, with resulting risk aversion benefiting bonds and the dollar.

Beijing's most populous district urged residents to stay at home as the city's COVID case numbers rose, while at least one district in Guangzhou was locked down for five days, Reuters reported.

The rash of outbreaks across the country has been a setback to hopes for an early easing in strict pandemic restrictions, one reason cited for a 10% slide in oil prices last week.

Chinese blue chips fell 1.3% in early trade, dragging 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 slipped 0.2%. EUROSTOXX 50 futures lost 0.4% and FTSE futures 0.2%.

The US Thanksgiving holiday on Thursday combined with the distraction of the soccer World Cup could make for thin trading, while Black Friday sales will offer an insight into how consumers are faring and the outlook for retail stocks.

Futures imply an 80% chance of a rise of 50 basis points to 4.25-4.5% and a peak for rates around 5.0-5.25%. They also have rate cuts priced in for late next year.

Central banks in Sweden and New Zealand are expected to hike their rates this week, perhaps by an outsized 75 basis points.

Bond markets clearly think the Fed will tighten too far and tip the economy into recession as the yield curve is the most inverse it has been in 40 years.

Yields on 10-year notes eased to 3.79%, leaving them 72 basis points below the two-year.

The Fed chorus has helped the dollar stabilize after its recent sharp sell-off, though speculative positioning in futures has turned net short on the currency for the first time since mid-2021.

The dollar was little changed at 140.36 yen, after last week's bounce from a low of 137.67. The euro eased 0.2% to $1.0298, well short of the recent four-month top of $1.1481.

The US dollar index firmed 0.25% to 107.180, and away from last week's trough of 105.300.

Meanwhile, turmoil in cryptocurrencies continued unabated with the FTX exchange, which has filed for US bankruptcy court protection, saying it owes its 50 biggest creditors nearly $3.1 billion.

In commodity markets, gold was a fraction lower at $1,747 an ounce, after dipping 1.2% last week.

Oil futures failed to find a floor after last week's drubbing saw Brent lose 9% and WTI roughly 10%.

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

bna

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