Europe Futures, Asian Stocks Fall on Covid-19 Fear: Markets Wrap

(Bloomberg) – European stocks faced declines on Thursday, and stocks across Asia fell as concerns about the spread of Covid-19 from China weighed on risk appetite in one of the last trading days of the year.

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Futures contracts for the Euro Stoxx 50 index fell, while benchmark stocks in Japan, China, Australia and South Korea fell on Thursday on weak trading volumes. Hong Kong tech stocks were among the hardest hit. Contracts for the S&P 500 fluctuated after the index fell 1.2% to its lowest level in more than a month.

10-year New Zealand government bond yields rose, while NZ government bond yields stabilized after rising in the previous session. The yen strengthened as the Bank of Japan’s announcement of unscheduled rounds of bond purchases failed to assuage speculation that the central bank would further scale back stimulus.

Risk appetite abated after it was revealed the US would require incoming passengers from China to present a negative Covid-19 test prior to entry. In Italy, health officials said they were testing arrivals from China and said nearly half the passengers on two flights from China to Milan were found to have the virus.

The prospect of another pandemic-related disruption to fragile supply chains as central banks struggle to rein in inflation dampened sentiment in the last trading week of 2022 after a brutal year for financial markets. Global stocks are down a fifth, the biggest annualized drop since 2008, and an index of global bonds is down 16%. The dollar is up 7% and the 10-year Treasury yield has surged to over 3.8% from just 1.5% at the end of 2021.

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Hong Kong lifted restrictions on gatherings and testing for travelers in a move to further lift its last major Covid rules, giving the global economy a boost but raising concerns it would add to inflationary pressures and prompt US policymakers to tighten maintaining the monetary policy framework.

China’s reopening “complicates the Fed’s work in terms of bidding a little below oil, going a little below inflation globally to aggregate demand,” said Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute , on Bloomberg TV. “That’s going to be one of the biggest things we’re going to see in the first half.”

Data released on Wednesday showed that the US Federal Reserve’s aggressive tightening policy has taken a toll on the housing market. US pending home sales fell in November for the sixth straight month to the second-lowest on record. Borrowing costs have roughly doubled since the beginning of the year and home sales have been falling for months.

Elsewhere in markets, oil fell amid thin liquidity as investors weighed the implications of a Russian export ban for buyers sticking to a price cap.

“We expect the economy to slow significantly or enter a recession sometime in 2023,” wrote Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments.

“A severe recession would be bearish for equities, but given the resilience of the US economy and a tight labor market, we expect a slowdown or a shallow and short recession. That could allow stocks to rally in the second half of 2023,” she said.

Important events this week:

• US initial jobless claims, Thursday

• ECB publishes economic report, Thursday

Some of the key movements in the markets:

stocks

• S&P 500 futures were little changed as of 3:26 p.m. Tokyo time. The S&P 500 fell 1.2%

• Nasdaq 100 futures were up 0.3%. The Nasdaq 100 fell 1.3%

• Japan Topix Index fell 0.7%

• Hong Kong’s Hang Seng fell 1%

• The Shanghai Composite fell 0.3%

• Euro Stoxx 50 futures down 0.3%

currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro was little changed at $1.0622

• The Japanese yen rose 0.6% to 133.68 per dollar

• The offshore yuan rose 0.4% to 6.9685 per dollar

cryptocurrencies

• Bitcoin rose 0.3% to $16,560.25

• Ether was up 0.6% to $1,193.81

Bind

• The 10-year government bond yield fell two basis points to 3.86%

• Japan’s 10-year yield was little changed at 0.46%

• Australia’s 10-year yield was little changed at 4.03%

raw materials

• West Texas Intermediate Crude fell 0.7% to $78.41 a barrel

• Spot gold rose 0.3% to $1,809.08 an ounce

This story was created with the support of Bloomberg Automation.

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