4.15pm: US markets end lower as Covid cases rise in China
US markets closed the wrong side of the line but off worst levels for the day after the San Francisco Federal Reserve President Mary Daly commented that officials need to be careful to avoid a "painful downturn."
At the close the Dow Jones Industrial Average was down 45 points, or 0.13%, at 33,700.28, the S&P 500 slipped 15 points, or 0.39%, to 3,950 and the Nasdaq Composite fell 122 points, or 1.1%, to 11,025.
Daly said on Monday "it will be important to remain conscious of this gap between the federal funds rate and the tightening in financial markets. Ignoring it raises the chances of tightening too much."
The news boosted hopes that rates would not rise as far as the market fears and helped recover some of the earlier losses which reflected a slump in oil prices and renewed Covid concerns in China.
Shares of Disney rose 6.29% after the company announced that former CEO Bob Iger would return to the helm of the entertainment giant, replacing Bob Chapek immediately. Iger’s return to Disney ends a brief and rocky tenure for Chapek, who took over the CEO role in February 2020.
12:05pm: Dollar higher ahead of Fed minutes
The major US indices felt the effect of crude oil prices dropping due to weakening Chinese demand, while the US dollar has had a strong start to the week.
At midday, the S&P 500 was down by 0.6% at 3,939, the Nasdaq Composite was down by 1% at 11,031, while the Dow Jones was down by 0.3% to 33,643 points.
Michael Hewson, chief market analyst at CMC Markets, said US markets were running lower in what is a short week due to the upcoming Thanksgiving break on Thursday, while surging Covid rates in China have weighed on the broader economic outlook.
“Crude oil prices have slipped back sharply on the back of concerns over weakening Chinese demand, as well as reports that Saudi Arabia supports the idea of a production increase, sending Brent prices to their lowest levels since January, and well below the levels they were before the Russian invasion of Ukraine. From a consumer point of view it’s welcome news in the lead up to Christmas as it’s likely to lead to lower prices at the petrol pumps,” Hewson wrote in a report.
At midday, West Texas Intermediate was down 5.6%, trading at US$75.60 a barrel.
Hewson noted the US dollar has had a strong start, as the follow through from last week’s comments from St. Louis Fed president James Bullard continued to filter through, and ahead of the release of this week’s Fed minutes.
“Most of today’s strength appears to be more to do with the slightly risk off sentiment being seen today as a result of concerns over the Chinese government re-imposing stringent lockdowns in response to rising Covid infections and the first Covid deaths since the beginning of 2Q when Shanghai was coming out of lockdown. This is no better borne out by the fact that the biggest gains are against the likes of the Japanese yen, which has rallied through the highs of last week,” Hewson wrote.
The major movers included Ross Stores, up by 9.9%, followed by infection prevention healthcare company STERIS, which rose by 8%, and Walt Disney was up by 6.4%.
On the downside, oil and gas companies largely slid, with Diamondback Energy down by 8.3%, Haliburton down by 8%, Marathon Oil down by 7%, and Chevron down by 3.5%.
9.40am: Rising COVID cases in China prompt growth concerns
US stocks opened mixed on Monday amid prevailing concerns about the global economic outlook, with added pressure due to rising COVID cases in China.
Just after the market opened, the Dow Jones Industrial Average had added 60 points or 0.2% at 33,806 points, while the S&P 500 was down 11 points or 0.3% at 3,954 points and the Nasdaq Composite had shed 58 points or 0.5% at 11,088 points.
The Walt Disney Company stock popped about 8.6% following the news Bob Iger would be returning to the company as its CEO, replacing Bob Chapek effective immediately after a slew of disappointing economic results. The company’s stock is down about 40% this year.
Forex.com market analyst Fiona Cincotta said risk sentiment had taken a hit amid rising COVID cases in China.
“The spike in cases and stricter curbs being implemented around some economic hubs such as Beijing and Shanghai is forcing pouring cold water over hopes that China could be considering a move away from its zero-COVID strategy,” Cincotta said.
“China’s reopening is seeing a massive setback and is proving to be a wild card for the markets. The prospect of worsening outbreaks means fresh lockdowns are looking increasingly likely, which would blow growth.”
6.30am: Some selling pressure
US stocks are expected to open lower on Monday as investors consider the prospect of more interest rate rises in the world's biggest economy and the outlook for the wider economy.
Futures for the Dow Jones Industrial Average were down 0.2% in pre-market trading, while those for the S&P 500 were 0.4% lower, and contracts for the Nasdaq-100 fell 0.7%.
“The US-inflation-data boosted rally faded last week, on the back of a too-strong-to-be-happy retail sales print, and a couple of hawkish comments from Federal Reserve presidents,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The coming week will be busy despite the Thanksgiving holiday on Thursday.
“This week, investors will focus on interest rate hikes and the US Black Friday sales,” said Ozkardeskaya.
Wednesday will be key with the Reserve Bank of New Zealand expected to raise its benchmark interest rate by another 75 basis points while the Fed reveals the minutes from its latest meeting a little bit later the same day, she added.
Further ahead, investors and retailers alike will be watching how sales on Black Friday pan out especially after a set of mixed earnings from retailers, including gloomy guidance from the likes of Target.
“The Black Friday sales will paint a clearer picture of the health of the US consumers, and their wallets in this inflationary environment. Remember, good sales are good for the mood, but too good sales would fuel inflation expectations, and the Fed hawks, and may not be good for investor appetite,” said Ozkardeskaya.
For now, some hope that spending in the US will slow. Citi analysts, for example, have been talking about a consumer-led recession, she noted, adding that this would be in line with what the Federal Reserve is trying to achieve, namely, to fight inflation by dampening demand.
Elsewhere, shares in entertainment giant Disney rose sharply after news that ex-boss Bob Iger is returning to the firm less than a year after he retired. Its shares were up over 8% in pre-market deals.
Contact the author at jon.hopkins@proactiveinvestors.com