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Worries About China Covid Surge May Weigh On Wall Street
US Market
The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to move to the downside after ending last Friday’s choppy session mostly higher.
Concerns about the outlook for the global economy may weigh on Wall Street amid a surge in new Covid cases in China.
China reported the death of three people after contracting Covid, marking the first Covid-related deaths that China’s mainland has reported since May.
The surge in new cases had led China to impose stringent restrictions in cities like Beijing and Shanghai, shattering recent hopes the country would soon ease Covid curbs.
Trading activity may be somewhat subdued, however, with some traders likely looking to get a head start on the upcoming Thanksgiving Day holiday.
A lack of major U.S. economic data may also keep some traders on the sidelines, although reports on durable goods orders and new home sales are likely to attract attention on Wednesday along with the minutes of the latest Federal Reserve meeting.
Stocks failed to sustain an initial move to the upside and showed a lack of direction over the course of the trading session on Friday. The choppy trading on the day extended the volatility seen over the past several sessions.
The Dow climbed 199.37 points or 0.6 percent to end the day at 33,745.69, and the S&P 500 rose 18.78 points or 0.5 percent to 3,965.34. Meanwhile, the Nasdaq spent the day bouncing back and forth across the unchanged line before closing up just 1.10 points or less than a tenth of a percent at 11,146.06
For the week, the Dow was nearly unchanged, while the S&P 500 slid by 0.7 percent and the Nasdaq slumped by 1.7 percent.
“U.S. stocks are acting like they are already feasted on a 12-pound turkey,” said Edward Moya, senior market analyst at OANDA. “Today’s market moves were uninspiring as we did not learn anything new.”
The initial strength on Wall Street partly reflected a positive reaction to upbeat earnings news from some big-name companies.
Apparel retailer Gap (GPS) moved sharply higher after unexpectedly returning to profitability in the third quarter on sales that exceeded analyst estimates.
Shares of Foot Locker (FL) also spiked after the athletic footwear and apparel retailer reported better than expected third quarter results and raised its full-year guidance.
Discount retailer Ross Stores (ROST) and cybersecurity company Palo Alto Networks (PANW) also posted standout gains after reporting quarterly results that beat expectations.
Buying interest waned shortly after the start of trading, however, with some disappointing U.S. economic data weighing on the markets.
The National Association of Realtors released a report showing a substantial decrease in existing home sales in the month of October.
NAR said existing home sales plummeted by 5.9 percent to an annual rate of 4.43 million in October after slumping by 1.5 percent to a rate of 4.71 million in September.
Existing home sales decreased for the ninth consecutive month, resulting in a 28.4 percent nosedive compared to the same month a year ago.
A separate report released by the Conference Board showed a much bigger than expected decrease by its reading on leading U.S. economic indicators in the month of October.
The Conference Board said its leading economic slumped by 0.8 percent in October after falling by a revised 0.5 percent in September. Economists had expected the index to decrease by 0.4 percent, matching the drop originally reported for the previous month.
Noting the index fell for the eight straight month, Ataman Ozyildirim, Senior Director, Economics, at The Conference Board, said the data suggests the economy is “possibly in a recession.”
Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.
Utilities stocks showed a strong move to the upside, however, with the Dow Jones Utility Average surging by 2.3 percent.
Significant strength was also visible among networking stocks, as reflected by the 2.2 percent jump by the NYSE Arca Networking Index.
Tobacco, healthcare and commercial real estate stocks also moved notably higher, while energy stocks moved to the downside amid a steep drop by the price of crude oil.
U.S. Economic Reports
The Treasury Department is scheduled to announce the results of this month’s auctions of $42 billion worth of two-year notes and $43 billion worth of five-year notes at 11:30 am ET and 1 pm ET, respectively.
Stocks in Focus
Shares of Disney (DIS) are moving sharply higher in pre-market trading after the entertainment giant announced Bob Iger is returning as CEO, replacing Bob Chapek.
Cancer drug developer Imago BioSciences (IMGO) is also seeing significant pre-market strength after agreeing to be acquired by Merck (MRK) for $1.35 billion or $36 per share in cash.
On the other hand, shares of MongoDB (MDB) may come under pressure after Morgan Stanley downgraded its rating on the database platform provider’s stock to Equal-Weight from Overweight.
Europe
European stocks have moved lower on Monday, with commodity-related stocks coming under selling pressure after China reported the first Covid-related deaths recorded since May this year.
Risk sentiment was also hit by fears of a potential escalation in the Russia-Ukraine conflict following recent shelling around the Zaporizhzhia nuclear power plant.
The International Atomic Energy Agency has called for “urgent measures to help prevent a nuclear accident” in the Russian-occupied facility, of which it said parts were damaged but showed no signs of a radiation leak.
The French CAC 40 Index is down by 0.2 percent and the German DAX Index is down by 0.4 percent, although the U.K.’s FTSE 100 Index has bucked the downtrend and inched up by 0.1 percent.
International Distribution Services, formerly Royal Mail, have slumped as more postal strikes loom in the busy holiday period.
Swiss engineering company ABB has edged down slightly after announcing that its unit ABB E-mobility has signed a pre-IPO private placement of around 200 million Swiss francs for newly issued shares.
Meanwhile, Virgin Money shares have jumped more than 10 percent after the British lender reported better-than-expected full-year results and announced a £50 million ($59.4 million) share buyback program.
Commerzbank has also moved higher. The German lender said on Saturday that former Bundesbank president Jens Weidmann would replace Helmut Gottschalk next year as head of its supervisory board.
In economic new, German producer price inflation eased more than expected in October to reach its lowest level in four months, data from Destatis showed.
Producer prices climbed 34.5 percent year-over-year in October, slower than the 45.8 percent surge in September. That was also well below the 41.5 percent rise expected by economists.
On a monthly basis, producer prices decreased 4.2 percent in October, reversing a 2.3 percent jump in September.
Asia
Asian stocks fell broadly on Monday, as China battled a record number of COVID-19 cases and Russian officials in control of Europe’s largest nuclear site accused Kyiv of shelling the area.
China has reported the death of three people after contracting COVID-19. It is the first COVID-related death that China’s mainland has reported since May.
As Russia and Ukraine trade blame over the weekend’s shelling near the Zaporizhzhia nuclear power plant, the head of the U.N. nuclear watchdog has warned that whoever fired artillery at the plant was “playing with fire.”
China’s Shanghai Composite Index dropped 0.4 percent to 3,085.04 after several cities in the country, including Beijing and Shanghai, imposed stringent restrictions to contain new COVID-19 outbreaks.
Hong Kong’s Hang Seng Index tumbled 1.9 percent to 17,655.91, extending losses for a fourth straight session.
Japanese shares fluctuated before ending slightly higher after Warren Buffet’s Berkshire Hathaway raised its stake in the country’s five biggest trading houses. The Nikkei 225 Index edged up 0.2 percent to 27,944.79, while the broader Topix ended up 0.3 percent at 1,972.57.
Trading house Marubeni closed 2.1 percent higher after touching a record high of 1,514 yen earlier in the day. Insurer Sompo Holdings plunged 8 percent after it swung to a loss in the six months ended September 30.
Seoul stocks tumbled, with the Kospi falling 1.0 percent to 2,419.50 amid pandemic, geopolitical and interest-rate uncertainties.
Australian markets ended lower, dragged down by losses in the mining and energy sectors. Santos, Woodside Energy, BHP, Rio Tinto, Fortescue Metals Group lost 1-4 percent. The big four banks rose between 0.6 percent and 1.5 percent on expectations that they will benefit from higher interest rates.
Online property settlement firm PEXA Group fell over 3 percent after its top shareholder Link Administration exited its holding.
The benchmark S&P/ASX 200 Index reversed early gains to finish 0.2 percent lower at 7,139.30, while the broader All Ordinaries index ended 0.3 percent lower at 7,335.10.
Commodities
Crude oil futures are sliding $0.55 to $79.53 a barrel after slumping $1.56 to $80.08 a barrel last Friday. Meanwhile, after falling $8.60 to $1,754.40 an ounce in the previous session, gold futures are slipping $8.80 to $1,745.60 an ounce.
On the currency front, the U.S. dollar is trading at 141.75 yen versus the 140.37 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0251 compared to last Friday’s $1.0325.
