Asian markets and oil prices fell mostly on Monday as a renewed Covid flare-up in Shanghai stoked fears of another economically painful lockdown in China’s biggest city.
The news came after a forecast-wrecking US jobs report last week indicated that the world’s leading economy has so far weathered the Federal Reserve’s rate hikes and is giving it room for more while battling rising inflation.
Traders are also keeping an eye on developments in Washington as President Joe Biden considers lifting some of the Donald Trump-era tariffs on hundreds of billions of dollars worth of Chinese goods.
Shanghai recorded more than 120 virus cases over the weekend after seeing its first case of the highly contagious BA.5 Omicron strain, forcing officials to launch another mass test drive.
With China fixated on its zero-Covid strategy to eradicate the disease, there are growing concerns that authorities will return to another painful lockdown, as Shanghai residents only emerged from a two-month confinement in June.
New infections have also been uncovered in other parts of the country, including Beijing.
This week’s data will provide a fresh update on the economic impact of these measures, as well as similar tight controls in Beijing.
The prospect of another lockdown prompted sell-offs in Hong Kong and Shanghai, while there were also losses in Sydney, Seoul, Taipei, Manila, Jakarta and Wellington.
However, there were gains in Tokyo as traders welcomed Japan’s ruling bloc, which secured a strong victory in Sunday’s upper house elections, which came days after the assassination of former Prime Minister Shinzo Abe.
The result should bring some stability to the government, and there were hopes of a cabinet reshuffle and economic stimulus.
– Fed “must be resolute” –
The weak start to the week followed a tepid lead from Wall Street, where strong payrolls numbers boosted bets of more big Fed rate hikes after officials said the economy was strong enough to withstand them.
The central bank is expected to announce a second straight hike of 0.75 percentage point at its next meeting later this month, while further large hikes are also expected before the end of the year.
Policymakers have said they are committed to bringing inflation down from four-decade highs, even if it means hurting growth.
On Friday, New York Fed President John Williams reiterated his resolve, saying in a speech: “Inflation is sky high and the number one threat to the overall health and stability of a well-functioning economy.
“I want to make it clear: this is not an easy task. We have to be determined and we mustn’t fall short.”
Concerns about another shock to the Chinese economy from potential shutdowns also weighed on oil markets as worries about slowing demand outweighed ongoing worries about supply shortages.
Nonetheless, there is a view that prices will remain elevated for the time being.
“Covid numbers are rising again,” said Stephen Innes of SPI Asset Management.
“Although the potential impact of a recession on demand continues to weigh on sentiment, the prevailing view, at least for now, is that the longer-term structural issues facing the oil market will support prices.”
Investors will be keeping an eye on Biden’s visit to Saudi Arabia this week, where he is expected to push for the crude oil giant to ramp up production to offset production lost from sanctions on Russia.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: up 1.0 percent at 26,787.00 (pause)
Hong Kong – Hang Seng Index: FALSE, up 2.4 percent to 21,194.75
Shanghai — Composite: down 1.2 percent at 3,314.43
West Texas Intermediate: FALSE, up 0.7 percent at $104.07 a barrel
North Sea Brent Crude: FALSE, up 0.4 percent at $106.63 a barrel
Euro/Dollar: DOWN at 1.0148 from 1.0183 on Friday
Pound/dollar: DOWN at 1.1990 from 1.2034
Euro/Pound: UP at 84.65p from 84.59p
Dollar/yen: up at 137.03 yen from 136.10 yen
London – FTSE 100: up 0.1 percent at 7,196.24 (close)
New York – Dow: down 0.2 percent at 31,338.15
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