Brent crude has fallen 4% this morning as concerns grow that China’s Covid-19 outbreaks will hit energy demand and economic growth.
The oil benchmark has fallen to $102.73 per barrel, its lowest in almost a fortnight.
US crude is also down 4%, back below $100 per barrel, as investors react to the prolonged Covid-19 lockdowns in Shanghai and the news of mass testing in Beijing’s largest district.
Oil is also being pulled lower by the prospect of interest rate rises this year as central bankers try to cool inflation.
Analyst Stephen Innes of SPI Asset Management explains:
Oil is rerating lower due to the China consumption hit while the Federal Reserve is raising interest rates to slow down the US economy. Those are two gusty headwinds suggesting some oil bulls will give way to recession fears and demand devastation.
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
Stock markets are beginning the new week on the back foot amid anxiety over China’s Covid-19 lockdowns and the health of the global economy.
Growth fears are rising as authorities in Beijing began a mass testing push after a spike in Covid cases.
Around 3.5 million residents and workers in its biggest district, Chaoyang, must report for three coronavirus tests this week.
More than a dozen residential buildings were put under lockdown in Chaoyang, an affluent downtown area home to embassies and international businesses. Fears of a City-wide lockdown feels Beijingers racing to supermarkets to stock up on food today.
The city has also imposed tight entry controls, and some gyms and after-school activity providers have stopped in-person classes.
With Shanghai further tightening its restrictions on the movement of some residents in the financial hub last week, concerns that tough lockdowns could stall China’s recovery are growing. That would have a knock-on impact on the global economy, creating more supply chain disruption and hitting energy demand.
China’s stock market has taken a slide, with the benchmark CSI300 index tumbling 3.5% today to its lowest level since late May 2020.
Other Asia-Pacific markets have been hit too, with Hong Kong’s Hang Seng shedding 3.3%, Japan’s Nikkei down 1.5% and Australia’s S&P/ASX iindex losing 1.6%.
Commodities are weakening too, with iron ore prices falling and oil at a two-week low.
China faces a “rapidly deteriorating growth outlook amid zero-Covid restrictions”, says Alvin Tan, analyst at RBC Capital Markets.
The renminbi has come under further pressure overnight after news that a Beijing district has to undergo three days of Covid testing starting today, plus Shanghai entering a fourth week of lockdown. Crude oil, iron ore, and Chinese equities have all slumped.
European markets are set for a lower open, adding to last Friday’s losses, with the main indices down over 1% in pre-market trading.
Wall Street ended last week with a tumble, after Federal Reserve chair Jerome Powell said it was ‘absolutely essential,’ to tame inflation, and that the Fed could lift interest rates by 50 basis points in May.
Also coming up today…
The CBI’s latest industrial trends report will highlight the pressures on UK factories from rising costs, while the IFO institute will update us on Germany’s business confidence.
And Twitter has reportedly begun negotiations with Elon Musk after pressure from shareholders, after Musk disclosed details of how his $43bn acquisition offer would be finances.
The company’s decision to engage with Musk, taken earlier on Sunday, did not mean it would accept his $54.20 a share bid, the sources said. It meant, however, that Twitter was exploring whether a sale to Musk was possible on attractive terms.
Musk, chief executive of Tesla, has been meeting with Twitter shareholders in the last few days seeking support for his bid. He has said Twitter needs to be taken private to grow and become a genuine platform for free speech.
- 9am BST: Ifo survey of Germany’s business climate in April
- 10am BST: Eurozone construction output report for February
- 11am BST: CBI’s industrial trends survey of UK factories in April
- 1.30pm BST: Chicago Federal Reserve’s national activity index
- 3.30pm BST: Dallas Federal Reserve manufacturing index