Stock markets and oil prices fell in holiday-thinned trade Monday as traders digested weak Chinese economic data and a looming US interest rate hike. Equities kicked off the month of May on the wrong foot after Wall Street finished a tough April by closing sharply down on Friday following disappointing results from tech giant Amazon.
Paris and Frankfurt were down in midday trading while London was closed for a bank holiday. Tokyo, Seoul, Mumbai, Manila and Wellington all fell. Hong Kong and mainland Chinese markets were closed along with several other Asian markets.
Sydney also retreated, though Qantas shares rose after the airline said it would launch the world’s longest non-stop commercial flight between Sydney and London by the end of 2025.
Data at the weekend showed Chinese manufacturing activity shrank last month at its fastest pace since the start of the pandemic as the government applies Covid-19 lockdowns in the country’s biggest cities.
The government’s refusal to shift from its zero-Covid policy and strict containment measures is fanning fears about the world’s number two economy and key driver of global growth.
“There is a bit of mixed sentiment among traders today,” Naeem Aslam, analyst at AvaTrade, told AFP. “On one hand you have bargain hunters coming to market but then on the other hand traders are concerned about the weakness on the Chinese economic data,” he said.
Investors are also looking ahead at the US Federal Reserve’s two-day policy meeting, which starts Tuesday and is expected to see the central bank hike borrowing costs by half a point — the most since 2000. Some analysts are predicting the Fed could even announce a three-quarter-point increase at some point as it battles more than 40-year-high inflation.
With some commentators warning rates could go as high as three percent, there are also worries the Fed could be too heavy handed and tip the US economy into recession. Fed boss Jerome Powell “could cement the view that 50 (basis points) is the new 25, but more worrying for stock pickers, there are lots of QE to unwind”, said SPI Asset Management’s Stephen Innes, referring to the quantitative easing bond-buying programme used by the Fed to keep rates low.
“So, the question is, how much of the impact of the balance sheet runoff” has been priced in. The struggles in China, the world’s biggest crude importer, led to a drop in prices of the commodity on demand concerns, offsetting worries about tighter supply as the EU eyes a ban on Russian oil over its invasion of Ukraine.
Brent North Sea crude, the international benchmark, was down 2.7 percent at $104.30 per barrel. The European Commission is currently preparing a sanctions text that could be put to the 27 member states as early as Wednesday, sources said, adding that the ban would be introduced over six to eight months to give countries time to diversify their supply.