Stocks, oil skid as China’s COVID protests roil sentiment

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SYDNEY — Stocks and oil weakened on Monday as rare protests in major Chinese cities against the country’s strict zero-COVID policy raised worries about management of the virus in the world’s second-largest economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.6%, after U.S. stocks ended the previous session with mild losses.

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Australian shares lost 0.47% while Japan’s Nikkei stock index was down 0.37%.

South Korea’s KOSPI 200 index retreated 1.35% in early trade and New Zealand’s S&P/NZX50 Index was off 0.4%.

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In China, demonstrators and police clashed in Shanghai on Sunday night as protests over the country’s stringent COVID restrictions flared for a third day.

Protests were also held in Wuhan, Chengdu, and other parts of Beijing late Sunday night as COVID restrictions were imposed to try and stop new outbreaks.

The dollar extended gains against the offshore yuan , rising 0.74% and focus shifts to the open of China’s markets later in the Asian morning.

Fears that China’s economic impact will be more severe than anticipated are being raised by protests and COVID rules.

“A growing list of cities, including those with large populations, have imposed strong restrictions on movement because of a surge in infections, there will inevitably be a negative impact on economic activity from the restrictions on movement,” CBA analysts said on Monday.

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“Even if China is on a path to eventually move away from its zero-COVID approach, the low level of vaccination among the elderly means the exit is likely to be slow and possibly disorderly. The economic impacts are unlikely to be small.”

China’s case numbers have hit record highs, with nearly 40,000 new infections on Saturday.

The fear of Chinese economic growth has also impacted commodities traded in Asia.

S&P 500 and Nasdaq futures both fell, pointing to possible declines in Wall Street later in the day.

U.S. crude oil fell 0.25 to $76.08 per barrel. Brent crude fell 0.16 to $93.48 per barrel.

Both benchmarks plunged to 10-month lows and fell for a third week in succession

“Mobility data in China is showing the impact of a resurgence in COVID-19 cases,” ANZ analysts wrote in a research note Monday. “This remains a headwind for oil demand that, combined with weakness in the U.S. dollar, is creating a negative backdrop for oil prices.”

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On Friday, the benchmark 10-year Treasury note yield climbed to 3.6905% compared to its close in the U.S. at 3.702%. The two-year yield, which tracks traders’ expectations of Fed fund rates, touched 4.467% compared with a U.S. close of 4.479%.

To 139.4, the dollar rose 0.2% against the Japanese yen. It is still well below its Oct. 21 high of 151.94.

The euro lost 0.2% at $1.0371 on the day, after having gained 4.94% over a month. However, the dollar index was up at 106.3, which tracks the greenback in relation to a basket of currencies from other major trading partners.

Investors will closely monitor the speech of Jerome Powell, Federal Reserve Chair, in Washington, Wednesday at the Brookings Institute about the economic outlook and labor market.

Gold was slightly less. Spot gold was sold at $1750.49 an ounce.

(Reporting from Scott Murdoch in Sydney; Editing done by Sam Holmes).