Shares and oil prices fell on Monday as investors assessed the impact of new Covid-19 outbreaks in China and awaited a likely rise in interest rates from the Federal Reserve later this week.
The technology-focused Nasdaq Composite fell 262.59 points, or 2%, to 12581.22, the lowest level since December 2020, as China locked the main production areas of Shenzhen and Changchun due to a new outbreak of Covid-19 cases in these cities.
S&P 500, som has fallen in four of the past five weeks, fell 31.20 points, or 0.7%, to 4173.11. The Dow Jones Industrial Average rose 1.05 points to 32,945.24, losing two sessions.
fell 2.7% as a lockdown in China disturbed manufacture of a key supplier. Other technology bells also struggled.
parent company of Google, fell 3 percent.
Investors have been alarmed lately the war in Ukraine and a rise in commodity prices triggered by the conflict, on top of the prospect of rising interest rates. They have pushed in perceived shelters such as gold and bonds while selling shares.
Covid-19 outbreak in China could renew concerns about potential supply chain problems and the subsequent impact on the US economy. Lack of everything from computer chips to chocolate has hampered growth for several months as the Omicron variant distorted business plans and increased costs for large and small businesses.
“The China shutdown and potential supply chain problems that people are afraid of,” said Joe Saluzzi, co-head of equity trading at Themis Trading. “Just like you thought you got relief in the supply chain, we can get another hit.”
The potential economic toll could change expectations of interest rate hikes from the Fed later in the year, he said. Investors are turning their attention to Fed monetary policy meeting, which ends Wednesday. The central bank is expected to raise its benchmark interest rate for the first time since 2018, as officials seek to control inflation. It navigates in an unusually complicated environment with a tight labor market, supply disruptions and most recently the war in Ukraine.
Economists said they expect the Fed to remain aggressive this year and next amid growing fears of inflation. US central banks, led by Fed Chairman Jerome Powell, are likely to raise interest rates five times this year and four times in 2023, BofA economists said in a Monday note. “[W]”I expect a hawkish message from President Powell that is likely to reiterate that the Fed needs to take price stability seriously,” BofA said.
Uncertainty about the war in Ukraine and its impact on the global economy and commodity prices has put a wrench in interest rate forecasts. Mr. Powell said at a House Financial Services hearing on March 2 that the Fed “will continue, but we will continue cautiously as we learn more about the implications of the Ukraine war for the economy.”
Bill Strazzullo, chief marketing strategist at Bell Curve Trading, said he would keep a close eye on the Fed’s statement Wednesday for any indication that the war is dampening future plans for rate hikes.
“The big story was how many times the Fed would tighten,” he said. “Now you’ve got this big exogenous shock. You have to take into account a slowdown in global GDP.”
Short-term inflation expectations among US households shot up to record levels in February, according to a Monday report from the Federal Reserve Bank of New York. Respondents to the bank’s money survey saw inflation reach 6% a year from now on, up from 5.8% in January, which is in line with record expectations from the November poll.
China’s Shanghai Composite Index fell 2.6 percent. after lockdown to contain coronavirus. In Europe, Stoxx Europe 600 rose 1.2%, led by shares in carmakers and banks.
The shutdown could cause oil demand to fall. Futures for Brent Oil, the international benchmark, fell 5.1% to $ 106.90 per share. barrel.
“The lockdown in Shenzhen and the possible lockdown in Shanghai have cooled traders’ enthusiasm,” said Tom Kloza, global head of energy analysis for OPIS, which is owned by Dow Jones & Co., as well as The Wall Street Journal.
One week ago, Brent prices reached $ 139 per barrel. barrel, the highest level since 2008, when the war in Ukraine disrupted global commodity markets. It has driven petrol prices to records, raising concerns that pressured consumers could slow their consumption ahead of the spring and summer driving seasons.
The yield on 10-year government bonds rose to 2.139% on Monday from 2.004% on Friday, their highest level since June 2019. Yields are moving in the opposite direction as bond prices.
Despite hopes for the negotiations, the conflict increases and there is growing concern among officials and investors that the war may run out of Ukraine. A Russian air strike on a Ukrainian military training center near the Polish border killed 35 people on Sunday. Russia has asked China for military equipment and other assistance for its war effort, according to U.S. officials.
Vitaliy Katsenelson, CEO of Investment Management Associates in Colorado, said his firm has bought defense stocks such as General dynamics as countries including Germany signal plans to increase arms spending. “They will see a huge influx of revenue over the next decade,” he said.
Write to Joe Wallace at [email protected]
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