Equities drop on unrest in China, Treasuries advance

Bloomberg

Shares decline as growing unrest in China over Covid-19 restrictions sent a shiver through the global markets. The dollar steadied after strengthening
in the risk-off mood while Treasuries advance.
Europe’s equity benchmark fell, with oil companies sliding as events in China weighed on crude prices. US stock futures dropped as modest customer traffic and heavy discounting by American retailers on Black
Friday added to the downbeat tone. Apple Inc. slipped in
premarket trading after a Bloomberg News report that turmoil at its key Chinese manufacturing hub may cause a shortfall of close to six million iPhone Pro units.
The greenback was boosted by haven demand, its biggest gain among G-10 peers coming against the currency of Australia, which is heavily exposed to trade with China. The yuan weakened and Chinese equities led stock-market declines in Asia.
The unrest in China complicates expectations of the country’s path to reopening, which — along with prospects of more moderate Federal Reserve interest-rate increases — had buoyed sentiment towards riskier assets in recent sessions. Traders also assessed the chances that China may exit its Covid Zero policy earlier than previously thought.
“Markets will respond negatively to the widespread protests and rising case numbers, which are likely to trigger new supply-chain disruptions and dampen consumption demand, at least in the short term,” said Gabriel Wildau, managing director at Teneo Holdings LLC in New York.
Oil slumped to the lowest level since December as the developments in China punished risk assets and clouded the outlook for energy demand, adding to stresses in an already-fragile global crude market. Gold steadied after earlier declines that accompanied the strengthening dollar.
The downbeat mood emanating from China contrasts with the boost to sentiment in global markets last week after the Fed’s November 1-2 meeting minutes showed most officials backing slowing the pace of
interest-rate hikes.
Since the Fed’s latest meeting, investors have parsed a bevy of economic data that somewhat eased inflation concerns, further strengthening the case for smaller rate hikes.
The S&P 500 notched a weekly gain of 1.5% that took the index to the highest level since early September. The Nasdaq 100 also eked out a gain for the week.
All eyes will be on the US jobs report this week and on Fed Chair Jerome Powell and New York Fed President John Williams, who are among central bank officials scheduled to speak.
Amid the challenges in China, the nation’s central bank on Friday cut the amount of cash lenders must hold in reserve for the second time this year, an escalation of support for an economy that’s being weighed down by Covid curbs.
“We do not expect economic or market headwinds in China to abate significantly over the coming months,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Policy support remains focused on stabilizing the economy, rather than spurring growth, in our view.”
The Stoxx Europe 600 falls 0.7% as of 9:16 am London time and futures on the S&P 500 also drop as much as 0.6%.
While futures on the Nasdaq 100 sink 0.7%, futures on the Dow Jones Industrial Average also drop 0.4%.
The MSCI Asia Pacific Index falls 0.6% and the MSCI Emerging Markets Index also drops around 1%.
The Bloomberg Dollar Spot Index falls 0.2% and the euro rises 0.5% to $1.0446.
While the Japanese yen rises 1.1% to 137.68 per dollar, the offshore yuan was little changed at 7.2010 per dollar and the British pound climbs 0.2% to $1.2112.