Stock markets, oil slip on weak Chinese data, looming US rate hike

Markets remain skittish regarding an expected aggressive Fed monetary policy


Published: Mon 2 May 2022, 8:57 PM

Stock markets slipped and oil prices also fell Monday as traders tracked weak Chinese economic data and a looming US interest rate hike that could tame inflation but also thwart growth.

Equities kicked off the month of May on the wrong foot after Wall Street finished a tough April by closing sharply down on Friday following disappointing results from tech giant Amazon.

“The markets remain skittish regarding an expected aggressive Fed monetary policy tightening cycle as the Central Bank is set to hike rates this week,” said analysts at Charles Schwab investment firm.

“Moreover, global sentiment continues to be hampered by the ongoing war in Ukraine, the recent spike in interest rates, the rallying US dollar, and slowing economic activity in China,” they said.

Wall Street see-sawed in early deals. The tech-heavy Nasdaq, having lost more than 13 percent in April for its worst monthly showing in 14 years, was just in the green — but the Dow Jones index was off around 0.4 percent some two hours into trading.

Eurozone markets ended the session down, Paris losing 1.6 percent and Frankfurt tumbling 1.2 percent.

London was closed for a bank holiday.

Tokyo, Seoul, Mumbai, Manila, Sydney and Wellington all finished lower. Hong Kong and mainland Chinese markets were closed along with several other Asian markets.

Data at the weekend showed Chinese manufacturing activity shrank last month at its fastest pace since the start of the pandemic as the government applies Covid-19 lockdowns in the biggest cities of the world’s second biggest economy.

While economic hub Shanghai remains locked down, Beijing has tightened virus controls in the capital, requiring clear Covid tests to visit public spaces.

This followed gloomy economic data in Europe on Friday showing that Russia’s invasion of Ukraine was weighing on growth.

The struggles in China, the world’s biggest crude importer, led to a drop in prices of the commodity on demand concerns, offsetting worries about tighter supply as the EU eyes a ban on Russian oil over its invasion of Ukraine.

Oil prices meanwhile slipped back, though limiting initial losses of more than three percent, with Brent North Sea crude, the benchmark international contract, falling to $103.71 before bouncing back above $106.

The European Commission is preparing a sanctions text that could be put to the 27 member states as early as Wednesday, sources said.

The ban would be introduced over six to eight months to give countries time to diversify their supply, they added.

Investors are also looking ahead at the US Federal Reserve’s two-day policy meeting, which starts Tuesday. It is expected to see the central bank hike borrowing costs by half a point — the most since 2000 — to tame soaring consumer prices.

Some analysts are predicting the Fed could even announce a three-quarter-point increase at some point as it battles more than 40-year-high inflation.

With some commentators warning rates could go as high as three percent, there are also worries the Fed could be too heavy handed and tip the US economy into recession.

“The Fed must make up for lost time and act quick and strongly as it faces inflation which keeps surprising as it rises,” said Franck Dixmier, head of fixed income at Allianz Global Investors.

“The challenge in executing the normalisation of its monetary policy is to ensure a soft landing of the US economy... while maintaining a dynamic labour market and above all avoiding triggering a recession,” he said.

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