4.15pm: US markets close sharply lower
US markets endured a tough day with all three major indices closing sharply lower as the fall-out from the Covid protests in China unsettled sentiment.
At the close the Dow Jones Industrial Average slumped 497 points, or 1.45%, to 33.850, the S&P 500 dropped 62 points, or 1.54%, to 3,964 and the Nasdaq Composite fell 177 points, or 1.58%, to 11,050.
Concerns that the protests in China would hit growth in the economic superpower and cause supply chain disruptions weighed on the markets with fears that the hoped for relaxation of Covid rules would be delayed.
Shares of companies with big production facilities in the country were under pressure. Apple dropped 2.6% after Bloomberg reported that unrest at a factory in China could mean 6 million fewer iPhone Pro units for the year.
Another faller was crypto friendly bank Silvergate which slid 11.5% after BlockFi formally filed for Chapter 11 bankruptcy as part of the continued fallout of FTX. Silvergate was BlockFi’s banking partner.
12:05pm: Apple shares drop on factory woes
The major US indices continued their slide midday as protests in China over Covid lockdowns brought a risk-off sentiment to the markets.
At midday, the S&P 500 was down by 0.8% at 3,994, the Nasdaq Composite was down by 0.7% at 11,149, while the Dow Jones fell by 0.7% to 34,092 points.
Joshua Mahony, senior market analyst at online trading platform IG, said Chinese protests are highlighting the ongoing pandemic, with Apple seeing its iPhone production hit by the latest quarantine measures.
“Weekend unrest in China building on the Covid-fuelled uncertainty that had been growing over recent weeks,” Mahony wrote in a report.
Mahony noted that World Cup soccer matches have inadvertently highlighted the disparity between China and the rest of the world, with football fans freely enjoying the tournament as the Chinese population suffers under Covid containment measures.
These measures have been blamed for 10 deaths in a Shanghai tower block, sparking a series of protests that have spread throughout the country, forming an uprising not seen on mainland China since 1989, Mahony wrote.
“From a market perspective, the outcome from these protests remain uncertain, with optimists hoping that it will push Xi Jinping to ease restrictions earlier," he wrote. "However, for now we see major uncertainty that has been reflected by market weakness, with concerns growing over a drawn-out period of restrictions thanks to growing Covid cases."
Apple is feeling the brunt of the quarantine, according to Mahony, at its Zhengzhou manufacturing plant operated by supplier Foxconn.
“The latest round of Covid restrictions have pushed thousands of Apple employees to quit, leaving a potential shortfall of 6 million iPhone Pro units this year," Mahony wrote. "Coming at a critical time for consumers, there is a risk that the company fails to capitalize on year-end demand."
“Should we see these issues continue throughout December, it is speculated that we could see 10% of Apple’s fourth-quarter production impacted. With Apple representing 6.5% of the S&P 500, and 13% of the Nasdaq, it comes as no surprise to see those wider markets suffer as a result,” he continued.
The major movers included Pinduoduo, up by over 13% on a third quarter earnings beat despite turmoil in China, while Netease was up by 3.2%, and Tesla rose 2.9%.
On the downside, Lumen Technology dropped 5%, Biogen was down by 4.4% and Apple slid by 2%.
9.35am: China fears in focus
US stocks tumbled at the open on Monday as concerns around protests and rising COVID-19 cases in China dominated market sentiment.
Just after the market opened, the Dow Jones Industrial Average had slipped 82 points or 0.2% at 34,363 points, the S&P 500 gave up 21 points or 0.5% at 4,005 points, and the Nasdaq Composite had shed 51 points or 0.5% at 11,175 points.
Forex.com market analyst Fawad Razaqzada said the implementation of strict mobility curbs in China over the weekend was going to keep economic activity subdued in the country and beyond.
“The civil unrest is adding another layer of uncertainty over the economic situation there,” he said. “It is certainly hurting investor sentiment across the financial markets.”
He added that the worry was that the world’s second-largest economy may tighten its COVID cubs even further.
“Although China relaxed some restrictions, its zero covid policy means the threat of more growth-choking lockdowns is there,” Razaqzada said.
“This is going to hold back the yuan and Chinese stocks, and potentially risk assets outside of China – not least crude oil, as we have seen.”
6.30am: China woes return
US stocks are expected to open lower on Monday with investors eyeing developments in China where anti-government demonstrations are growing.
Futures for the Dow Jones Industrial Average were down 0.5% in pre-market trading, while those for the S&P 500 were 0.7% lower, and contracts for the Nasdaq-100 shed 0.8%.
“Falling oil prices and concerns over the impact of mounting unrest in China are taking a toll on markets as the new trading week gets underway,” said James Hughes, chief market analyst at scopemarkets.com.
The world’s attention has been drawn to China, often regarded as the growth engine of the world, where people are demonstrating against the government’s tough COVID-19 restrictions which they believe are excessive. News of the protests in the country’s major cities is leading to worries that activity in the world’s most populous country will start to slow.
Still, losses seen early in the European session appear to be limited so this could help lift US futures a little before the opening bell, said Hughes.
“Once again it’s a light day in terms of economic and corporate data, but there is the first of a slew of speeches by Fed board members due later. Given the absence of other data points, this could well come with an outsized reaction for the market,” he noted.
Today’s speaking engagements include St Louis Fed President James Bullard’s interview by MarketWatch and NewYork Fed President John Williams’ speech at the Economic Club of New York.
"As the week progresses, smaller retailers will offer some valuable insight as to how the consumer economy is holding up, whilst there’s also the non-farm payrolls and earnings growth data due for release on Friday. For now, however, it’s looking like a rather uninspiring start," added Hughes.
Last week, US stocks ended higher despite the holiday for Thanksgiving and investors are holding out hope that the Black Friday sales season will bring some cheer to retailers.
Contact the author at jon.hopkins@proactiveinvestors.com