Stocks finished lower Monday, while the dollar built solid gains against its global peers, as markets took a defensive stance into the short Thanksgiving week amid renewed concerns over the pace of Covid infections in China.
Schools were closed in the capital city of Beijing Monday, with residents urged to stay at home, following a spike in infections and the first Covid-related deaths in more than six months. Nationally, cases have risen close to 27,000, the highest since April, casting further doubt on any near-term 'pivot' in health policy from President Xi Jinping.
Global oil prices extended declines on the reports, with WTI crude futures for January delivery falling 17 cents to $79.94 per barrel amid bets on reduced demand from the world's biggest energy importer. Brent crude contracts for the same month were down 29 cents to $87.33 per barrel.
Apple (AAPL) shares were also affected, falling 2.2% following a report suggesting the tech giant will need to extend wait times for its new, high-end iPhone 14s beyond Christmas amid ongoing production delays at a key factory in Zengzhou.
Beyond Asia, investors are also proceeding with caution amid increasing concern for recession in the U.S., the world's biggest economy, following moves last week in the bond market that saw the yield on one-month Treasury bills top those for 30-year bonds for the first time since late 2019. Each of the two times this has happened -- the other was in 2007 -- the U.S. fell into recession within six months.
Investors, therefore, are hoarding cash and moving into defensive positions, according to Bank of America's closely-tracked Global Fund Manager's survey, which showed cash levels in November of 6.2%, just shy of the highest in more than two decades. Around 92% of participants in the poll think the global economy is set for a bout of stagflation -- negative growth with rising inflation -- sometime next year.
Minutes from the Federal Reserve's November policy meeting Wednesday may offer clues as to how, or if, members of the Open Markets Committee are prepared to alter their policy stance in the face of weakening growth prospects, although Atlanta Federal Reserve President Raphael Bostic hinted Sunday that it may be soon to "let the economic dynamics play out" once another 0.75% to 1% is added to the current Fed Funds rate.
"Being more cautious as policy moves deeper into restrictive territory seems prudent," Bostic said in a speech to the Southern Economic Association in Washington.
The CME Group's FedWatch indicates am 75.8% chance of a 50 basis point rate hike in December, which would take the Fed Funds rate to a range of 4.25% to 4.5%, with bets on a terminal rate of between 5% and 5.25% in the early spring dominating futures trading.
Wall Street is also likely to focus on the run-up to Black Friday this week amid a light calendar of economic and corporate earnings and the traditional Thanksgiving holiday lull in market liquidity.
Credit card issuer Mastercard (MA) said earlier this month that Black Friday sales are likely to rise 15% from last year, lead by a comeback in department store and brick-and-mortar sales pared with better online offerings as well as a surge in travel and dining.
A host of retailers reported better-than-expected October quarter earnings last week, although there was a lack of consensus among the biggest names, including Walmart (WMT) and Target (TGT), as to the strength of the holiday season.
Best Buy (BBY), Dollar General (DG) and Dollar Tree (DLTR) will report this week, alongside Zoom Video Communications (ZM) and HP Inc (HPQ) after the close of trading later today.
The S&P 500 ended down 0.39%, while the tech-heavy Nasdaq fell 1.09%.
The Dow Jones Industrial Average finished down a more modest 45 points, or 0.13%, to 33,700, thanks in part to a 40 point contribution from Disney (DIS), which soared 6.3% following the shock departure of CEO Bob Chapek and the return of former boss Bob Iger to lead the media and entertainment group.
Overnight in Asia, rising Covid infections in China kept a lid on regional gains, with the MSCI ex-Japan index falling 1.34% into the close of trading. Japan's Nikkei 225 closed 0.16% higher as the yen slipped to 141.80 against the greeback.
In Europe, the region-wide Stoxx 600 was marked 0.01% lower by the close of trading in Frankfurt, with London's FTSE 10 down 0.08%.
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