Morning Chronicle - China lockdown fears hit equities, oil prices

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China lockdown fears hit equities, oil prices
China lockdown fears hit equities, oil prices / Photo: Hector RETAMAL - AFP/File

China lockdown fears hit equities, oil prices

Stock markets and oil prices slid Monday with a fresh Covid flare-up in Shanghai fanning fears of another painful lockdown in China's biggest city.

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European equities headed south following hefty losses for most main Asian markets, and Wall Street followed suit as investors braced for the beginning of the corporate earnings season later this week.

The euro continued to weaken against the dollar, heading towards parity with the greenback for the first time in more than 20 years.

And the European Commission said it would again cut its growth forecast for the current year and hike its expectations for inflation.

"It is no longer a question of if euro-dollar will fall to one, but more a question of how quickly and will it stop there," City Index analyst Fiona Cincotta told AFP.

"With energy security concerns rising by the day in Europe, a recession seems almost impossible to avoid. Meanwhile, the strong US jobs report means that a 100-basis-point rate hike this month can't be discounted. The diverging economic outlooks and the significantly more hawkish Fed means that euro-dollar could comfortably fall below parity," she said.

AJ Bell investment analyst Danni Hewson said "three catalysts... could shake investors out of their torpor as we get the latest reading of US inflation, GDP (gross domestic product) figures from China and the big US banks kick-off the second quarter earnings season across the Atlantic."

Traders were keeping tabs on US President Joe Biden as he weighs removing some of the tariffs on Chinese goods worth hundreds of billions of dollars that were imposed by predecessor Donald Trump.

- China growth fears -

The prospect of another lockdown sparked an equities sell-off in Hong Kong and Shanghai on Monday.

Chinese tech firms took a battering after authorities fined giant Tencent and Alibaba over not properly reporting past deals.

Hong Kong-listed casino operators were also sharply lower after officials in Macau embarked on a week-long lockdown to curb its worst coronavirus outbreak.

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

However, Tokyo rose as traders welcomed Japan's ruling bloc securing a strong win in Sunday's upper house election, held days after the assassination of former premier Shinzo Abe.

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

Shanghai recorded more than 120 virus cases at the weekend, having seen its first one of the highly contagious BA.5 Omicron strain, forcing officials to launch another mass testing drive.

With China fixated on its zero-Covid strategy to wipe out the disease, there is increasing concern that authorities will revert to another painful lockdown. Shanghai residents only emerged from a two-month confinement in June.

There have meanwhile been new infections uncovered in other parts of the country, including Beijing.

Data this week will provide a fresh update on the economic impact of those measures, as well as similar strict controls in Beijing.

- Key figures at around 1345 GMT -

New York - Dow: DOWN 0.5 percent at 31,181.08 points

London - FTSE 100: DOWN 0.2 percent at 7,178.74

Frankfurt - DAX: DOWN 1.5 percent at 12,823.32

Paris - CAC 40: DOWN 1.1 percent at 5,969.67

EURO STOXX 50: DOWN 1.2 percent at 3,466.34

Tokyo - Nikkei 225: UP 1.1 percent at 26,812.80 (close)

Hong Kong - Hang Seng Index: DOWN 2.8 percent at 21,124.20 (close)

Shanghai - Composite: DOWN 1.3 percent at 3,313.58 (close)

West Texas Intermediate: DOWN 2.3 percent at $102.35 per barrel

Brent North Sea crude: DOWN 2.0 percent at $104.85 per barrel

Euro/dollar: DOWN at $1.0062 from $1.0183 on Friday

Pound/dollar: DOWN at $1.1892 from $1.2034

Euro/pound: UP at 84.63 pence from 84.59 pence

Dollar/yen: UP at 137.37 yen from 136.10 yen