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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Markets hit by China lockdown fears; UK manufacturing confidence slides amid supply crunch – as it happened

China Elon Musk Oil Stock Market Twitter Inc. Covid-19 CBI Ifo
An electronic share price board showing the closing numbers on the Tokyo Stock Exchange in Tokyo today
An electronic share price board showing the closing numbers on the Tokyo Stock Exchange in Tokyo today Photograph: Kazuhiro Nogi/AFP/Getty Images

A late PS: Wall Street has shrugged off its earlier losses, to close in the green.

Despite concerns over China’s lockdowns, the Dow Jones industrial average ended the day 0.7% higher at 34,049 points, up 238 points in the session, with technology and consumer firms among the gainers.

Johnson & Johnson (+2.5%), Microsoft (+2.4%) and American Express (+2%) led the gainers, while communications group Verizon (-3.1%) and oil major Chevron (-2.1%) lagged.

Tech stocks benefited from a drop in bond yields today, as investors anticipated a slower-than-hoped recovery. Twitter jumped around 5.6% after agreeing to Elon Musk’s takeover offer.

As CNBC points out, US stocks have already been on a poor run:

Stocks bounced after the Nasdaq Composite fell into a bear market last week. The Nasdaq is now down 19.8% from its record, while the S&P 500 is back in correction territory, down 10.8% from its high. The Dow is coming off its worst one-day performance since 2020 on Friday and four straight losing weeks. The S&P 500 and the Nasdaq fell for three consecutive weeks.

Wall Street is bracing for a stacked week of earnings, particularly reports from major technology companies. About 160 companies in the S&P 500 are expected to report earnings this week, and all eyes will be on results from mega-cap tech names, including Amazon, Apple, Alphabet, Meta Platforms and Microsoft.

“This week may easily be a fork in the road of equities. … Bottom-up drivers will either confirm or reject what the challenging macro backdrop has given us over the last three weeks,” MKM’s JC O’Hara said in a note.

Twitter agrees Elon Musk takeover deal

Twitter has agreed to sell itself to Elon Musk, the world’s richest man, in a $44bn (£35bn) deal.
The deal puts the Tesla chief executive in charge of a company with 217 million users and an influential role in shaping the political and media agenda on both sides of the Atlantic. Twitter’s initial reluctance to accept a transaction appeared to fade after Musk confirmed a funding package for the deal and shareholders warmed to it. Musk has signalled that Twitter will be overhauled under his leadership, including changes in content moderation, having described himself as a “free speech absolutist”.

The deal comes after a dramatic few weeks of speculation about Twitter’s future, triggered by Musk’s emergence as the platform’s largest single shareholder on 4 April. He then declared a $43bn takeover bid on 14 April, which prompted Twitter’s board to signal its displeasure at his overtures by adopting a so-called poison pill defence 24 hours later.

However, the apparent opposition of Twitter’s board faded after Musk drew up a $46.5bn funding package for the bid, including $21bn of his own money. According to reports, both shareholders and the Twitter board began to take the offer seriously once finance had been put in place.

The deal is not expected to face serious scrutiny from US competition authorities because Musk’s major business interests – an electric car company, the SpaceX rocket business and tunnelling firm the Boring Company – do not compete with Twitter.

However, the deal is likely to draw comment from politicians and campaigning bodies given Twitter’s influence as an information source and Musk’s stance on free speech.

Here’s our news story on today’s market jitters:

Summary

Here’s a round-up of today’s main stories:

That’s probably all for today... Goodnight. GW

European markets close in the red

A general view of the floor at Madrid’s Stock Exchange main heaquarters today.
A general view of the floor at Madrid’s Stock Exchange main heaquarters today. Photograph: Vega Alonso/EPA

Stock markets across Europe have closed with losses across the board.

Fears that China’s Covid-19 outbreaks will hit global growth sent the UK’s FTSE 100 index down by 1.9% by the close of trading.

The blue-chip index ended 141 points lower at 7,380, its lowest close in over five weeks and its biggest drop since early March.

Mining stocks led the fallers, after the tumble in commodity prices today, with Anglo American (-6.8%) followed by BP (-6.1%) and Glencore (-5.6%).

The pan-European Stoxx 600 index lost 1.8%, hitting a one-month low. France’s CAC 40 dropped by 2% as anxiety over the risk of lockdowns in China outweighed relief that Emmanuel Macron had won a second term as France’s president.

Michael Hewson, chief market analyst at CMC Markets, sums up the day:

European markets have been a sea of red today, after a weak lead from Asia which was prompted by sharp falls in Chinese markets as the Covid situation in Shanghai continued to deteriorate, with deaths rising to a record level. Notwithstanding that, covid cases are now starting to manifest themselves in Beijing, raising concerns over a strict lockdown there.

This, in turn, has prompted concerns that China’s zero covid policy will hobble the ability of the Chinese government in meeting its GDP target for this year. The 5.5% target had already started to look difficult to achieve after Q1 GDP came in at 4.8%, and with little sign of an economic reopening this target is already being revised lower by various banks.

The re-election of Emmanuel Macron as French President has almost become an irrelevance to the wider overall concerns around the global economy, offering little in the way of a lift to French markets or the euro.

Brent crude falls through $100/barrel

Economic slowdown fears have pulled Brent crude oil prices back below the $100 mark, for ther first time in a fortnight.

Brent is now down over 6% today at $99.64 per barrel, on jitters that further China lockdowns would mean lower demand for energy.

Ole Hansen, head of commodity strategy at Saxo Bank, says China is heading for the worst oil demand shock since early 2020.

Supply worries have not suddenly disappeared with Libyan supply disruptions as well as sanctions and a potential widening ban against Russian crude oil import also lingering.

For now, however, the market is in risk-off mode with the risk of longs getting squeezed.

ECB's Panetta demands action over crypto 'Wild West'

A senior European Central Bank policymaker has called for co-ordinated global action to regulate crypto-assets and protect consumers from danger.

Fabio Panetta, Member of the Executive Board of the ECB, compared crypto to the gold rush, where “greed and lawlessness” saw “the few exploited the dream of the many”.

Panetta told an audience at Columbia University that crypto-assets are bringing about instability and insecurity – the exact opposite of what had been promised in the landmark 2008 white paper on bitcoin.

In a no-holds-barred speech, Panetta says:

They are creating a new Wild West. To quote Littlefinger from Game of Thrones, “chaos is a ladder”. The story does not end well for this character. However, it only takes a few to climb high on the ladder – even if their gains are only temporary – to convince many others that they are missing out.

Indeed, the crypto market is now larger than the sub-prime mortgage market was when – worth $1.3trn – it triggered the global financial crisis. And it shows strikingly similar dynamics. In the absence of adequate controls, crypto-assets are driving speculation by promising fast and high returns and exploiting regulatory loopholes that leave investors without protection. Limited understanding of risks, fear of missing out and intense lobbying of legislators drive up exposures while slowing down regulation.

We must not repeat the same mistakes by waiting for the bubble to burst, and only then realising how pervasive crypto risk has become in the financial system. And while some may hope to be smarter and get out in time, many will be trapped.

Now is the time to ensure that crypto-assets are only used within clear, regulated boundaries and for purposes that add value to society. And it is time for policymakers to respond to the people’s growing demand for digital assets and a digital currency by making sovereign money fit for the digital age.

Panetta also compared the crypto market to a Ponzi scheme, explaining:

Rising prices are fuelled by extensive news reports and investment advice on social media, highlighting past price increases and features such as artificial scarcity to create the fear of missing out. As a result, many invest without understanding what they are buying.

Like in a Ponzi scheme, such dynamics can only continue as long as a growing number of investors believe that prices will continue to increase and that there can be fiat value unbacked by any stream of revenue or guarantee. Until the enthusiasm vanishes and the bubble bursts.

Here’s the full speech:

For a few cryptos more: the Wild West of crypto finance

The U.S. economy expanded in March, but growth softened compared with the previous month, data shows.

The Chicago Fed National Activity Index, which tracks economic activity and inflationary pressuures, decreased to 0.44 in March from a revised 0.54 in February. That suggests the US kept growing last month, but at a slower rate.

Back in the UK’s cost of living crisis, more than one in seven private tenants are paying over the odds to secure a rental property.

Research shows that 15% of tenants paid more than the advertised rent to secure their property, due to desperation to get a roof over their heads or because of a shortage of options on the market.

Stocks open lower in New York

The New York Stock Exchange.
The New York Stock Exchange. Photograph: Caitlin Ochs/Reuters

Wall Street has joined today’s selloff, as investors fret about the prospect of more lockdowns in China and aggressive US interest rate hikes.

The Dow Jones industrial average has dropped by 270 points, or 0.8%, to 33,540 points, its lowest in over a month.

That follows its worst session since early in the pandemic on Friday, when the Dow lost 981 points.

Oil company Chevron (-2.6%) is the top faller on the Dow, with aerospace manufacturer Boeing (-2%) and construction equipment maker Caterpiller (-1.75%) also among the fallers.

The tech-focused Nasdaq has extended its recent selloff too, down another 0.9%, while the broad S&P 500 index is down 1%.

Fawad Razaqzada, market analyst with City Index and FOREX.com, says Covid worries are roiling financial markets.

Concerns about demand have intensified as after Beijing locked down parts of Chaoyang District as the virus spread there. This triggered panic as people had hoped that lockdowns would ease in Shanghai rather than more restrictions being imposed elsewhere.

But now the prospects of the capital city being put into a full lockdown has unnerved investors worldwide. Not only does this imply weaker demand from China, but it could reignite supply chain woes, further exacerbating inflationary pressures.

Precious metals prices are sliding, hit by worries over China’s economic outlook as Covid-19 infections spread.

Palladium has taken the biggest knock. The metal, used in catalytic converters, is down 10%. Platinum, silver and gold have all lost over 2%.

Full story: Optimism falls as UK factories hit by fastest rise in costs since 1975

Optimism among UK manufacturers has fallen at its sharpest pace since the first coronavirus pandemic lockdown two years ago as firms struggle to cope with the fastest increase in their costs since 1975, according to the latest industry health check.

With the war in Ukraine giving a fresh upward twist to the pressures on companies, the April industrial trends survey from the employers’ organisation the CBI found firms cutting back on investment and planning to pass on higher costs to consumers.

Manufacturing output and order books continued to grow despite the worsening inflationary backdrop but at a slower pace than in recent months, the CBI said.

The survey showed the balance of firms whose costs increased – the number reporting a rise minus the number reporting a drop – stood at 87 percentage points in April. That was only slightly below the record of +88 points in July 1975, when UK inflation was running at more than 20%.

Dearer raw materials and energy resulted in the fastest average price increases (+60 points) since 1979, with a further acceleration in price growth expected in the next three months.

The CBI said the downward trend in optimism among manufacturers had continued. A year ago, when the UK was emerging from the early 2021 lockdown, firms upbeat about the outlook outweighed those gloomy by a balance of +38 percentage points. By October that had dropped to +2 points as supply chain shortages pushed up prices. The figure now stands at -34 points.

More here:

Updated

Almost 90% of British households reported an increase in their cost of living last month as they were hit by escalating fuel, food and borrowing costs, my colleague Phillip Inman reports.

Heaping further pressure on Rishi Sunak to increase his support for those on low and middle incomes, the Office for National Statistics said a quarter of all those in its survey were struggling to pay their bills and 17% had turned to loans or borrowing on credit cards to make ends meet.

Debt charities and anti-poverty campaigners said the figures, which cover the last two weeks of March, were a shocking reminder that this year households face the biggest cut in their living standards since the 1950s.

Here’s the full story on this morning’s ONS report:

Shares in Twitter have jumped in pre-market trading, on reports that the social media group is in the final stretch of negotiations about a sale to Elon Musk.

Here’s Reuters’ latest:

Twitter Inc is nearing a deal to sell itself to Elon Musk for $54.20 per share in cash, the price that he originally offered to the social media company and called his ‘best and final’, people familiar with the matter said.

Twitter may announce the $43bn deal later on Monday once its board has met to recommend the transaction to Twitter shareholders, the sources said. It is always possible that the deal collapses at the last minute, the sources added.

Twitter has not been able to secure so far a ‘go-shop’ provision under its agreement with Musk that would allow it to solicit other bids from potential acquirers once the deal is signed, the sources said.

Still, Twitter would be allowed to accept an offer from another party by paying Musk a break-up fee, the sources added.

Twitter and Musk did not immediately respond to requests for comment.

Twitter shares are up over 5% at $51.58 in pre-market trading, up from $48.93 on Friday night, approaching Musk’s proposal.

Lunchtime markets: Slowdown fears rattle markets

Global markets are continuing to show heavy losses today, as rising Covid-19 cases in China fuel worries about economic growth.

In London, the FTSE 100 index is down 160 points, or 2%, at 7368 points, a five-week low, after China’s stock market saw its biggest one-day drop in over two years.

Anxiety about the economic consequences of China’s Covid-19 outbreaks are driving the selloff, with mining group Anglo American now down 7.3% and Glencore off 6.5%.

BP are down 4.5%, with crude oil prices still down around 4% on forecasts that China’s energy demand will be hit by lockdowns.

Other internationally-focused firms are also among the major fallers in London, reflecting concerns over the global economy as the US Federal Reserve looks likely to hike US interest rates sharply this year.

Fashion group Burberry has lost 4.5% and equipment rental group Ashtead is down almost 5%.

Raffi Boyadjian, lead investment analyst at XM, says:

A worsening outbreak of Covid-19 in China dragged risk assets lower at the start of the new trading week as stocks extended Friday’s losses while the US dollar scaled a fresh two-year high against a basket of currencies. Restrictions in Shanghai are being tightened again, having been partially eased only last week, after a fresh flare-up in daily cases.

The latest measures are likely the most draconian yet with infected people being transferred to government quarantine facilities, while some neighbourhoods have been fenced off. But perhaps an even bigger warning sign for investors is that Beijing is also now seeing a spike in infections. Authorities have placed parts of Chaoyang district under lockdown and ordered residents to get tested three times this week.

With markets still reeling from the fallout from the war in Ukraine and global supply chains yet to normalize, China’s zero-Covid strategy is threatening to destabilize supply lines even further, fuelling the shortages and adding more pressure on prices.

China’s benchmark CSI 300 index slumped by almost 5% today as the government’s growth target of 5.5% looked increasingly unattainable.

Investors have been less than impressed by the economic support measures that have been announced so far by Chinese policymakers as they don’t go far enough to address the concerns about a major slowdown.

Asset price moves, 25th April 2022

Updated

UK manufacturing confidence hammered after Ukraine invasion

Confidence among UK manufacturers has fallen at the fastest rate since the first Covid-19 lockdowns, as the Ukraine war and rising inflation bites.

Business sentiment and export optimism both fell in April, at the sharpest rates since April 2020, as economic uncertainty and commodity prices both jumped.

The balance between UK factories who were more upbeat about their business situation, rather than pessimistic, slumped to -34% in April from -9% in January, according to the CBI’s first quarterly Industrial Trends Survey since Russia’s invasion of Ukraine.

That’s the biggest drop in confidence since April 2020, in the first wave of the pandemic.

Investment intentions for the year ahead were much weaker across the board in April compared to three months ago, suggesting that firms are cutting back.

Companies also reported that growth in output and new orders slowed over the last quarter, with new orders expected to keep falling in the next quarter -- a sign that the economy is slowing.

Cost pressures remained intense, with average costs growing at the fastest rate since July 1975 . Firms also hiked domestic prices at the fastest pace since October 1979, which will feed through to consumers as higher prices in the shops.

The cost of raw materials was the most important factor behind expectations for cost growth in the next three months (80% of respondents said this was extremely important), followed by energy costs (59%), transport costs (41%) and labour costs (38%).

Anna Leach, CBI deputy chief economist, explains:

“Manufacturing orders and output continue to grow, albeit at slower rates.

But the war in Ukraine is exacerbating the Covid-related supply crunch, with cost increases and concerns over the availability of raw materials at their highest since the mid-1970s.

It’s little wonder that sentiment has deteriorated sharply over the past three months and manufacturers are now scaling back their investment plans.

Updated

Two of Britain’s supermarket chains are cutting the prices of essential items, as the cost of living squeeze hits consumers.

My colleague Jasper Jolly explains:

Asda has said it will spend £73m to cut or freeze prices on 100 products, while Morrisons says it will cut prices on 500 products as Britain’s supermarkets fight to keep customers amid rising inflation.

The Morrisons products subject to price cuts represent 6% of its total sales, and include items such as eggs, cereal, cooking sauces, chicken and sausages. Asda said its price reductions would be on fresh fruit and vegetables, fresh meat, rice and noodles.

Recent increases in oil prices, global supply chain disruption caused by coronavirus lockdowns and Russia’s war on Ukraine have fuelled soaring inflation across the world, putting a strain on household finances.

Here’s the full story:

Disabled employees are particularly vulnerable to the cost of living crisis, due to the pay gap with non-disabled workers.

The UK’s disability pay gap was 13.8% last year, with workers with a disability earning almost £2 per hour less. Back in 2014 the gap was 11.7%.

Disabled employees earned a median of £12.10 per hour and non-disabled employees a median of £14.03 per hour in 2021, new data from the ONS today shows:

The TUC warns that disabled workers face a “living standards emergency”, with a pay difference of over £3,500 per year (based on a 35-hour week).

TUC General Secretary Frances O’Grady said:

Disabled workers were among the hardest hit during the pandemic

And now millions of disabled workers face a living standards emergency – with lower pay than non-disabled workers, but higher energy and transport costs.

With bills and prices sky-rocketing, the government must act now to help disabled workers and all struggling families.

That means coming back to parliament with an emergency budget to boost pay and universal credit, and cut energy bills.

Today’s market selloff has pulled emerging markets into correction territory, now down 10% from their peak earlier this month.

European markets continue to tumble too:

The cost-of-living crisis is escalating quickly with almost a quarter of people having trouble in paying their household bills, says Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:

Pretty much everyone is feeling the pinch but those on lower incomes are particularly badly affected with prices rising fastest on life’s essentials such as food and heating bills.

People report trying to use less fuel as a means of keeping costs down and there are also signs people are cutting back on their food shops. However, people can only cut back so far on these things so there is precious little room for manoeuvre.

So far, the current situation hasn’t translated into people falling behind with rents or mortgages – only around 3% of people have reported this, a figure that has remained largely stable. However, this could be because people are burning through their lockdown savings in a bid to meet their day to day living costs while others opt to borrow more to meet their needs. Mortgage payers have had the option to fix their costs in recent months, but those who rent will feel very exposed to further increases in the coming months.”

The jump in people strugging to pay their bills shows that the cost of living crisis is hitting British families hard.

Jack Leslie, senior economist at the Resolution Foundation, says the government must provide more help, targeted at poorer households:

“The combination of shrinking pay packets and rising costs means that the pressure on households is building, with lower-income families set to feel the squeeze the most, and over a third of the most deprived fifth of households in England already saying it has been difficult or very difficult to pay their usual bills. This is set to get worse, with the estimated number of households experiencing fuel stress hitting five million this month.

“Going forwards, the Government must do it all it can to protect those who will be hardest hit – with support for low-income households a priority.”

A quarter of British adults struggling to pay bills

Nearly a quarter of British households are struggling to pay their bills, as rising inflation drives the cost of living crisis.

New data from the Office for National Statistics has found that almost all adults are facing rising costs, forcing some to borrow money, and leaving many with nothing left to save.

Around 1 in 3 (34%) adults living in the most deprived areas of Great Britain reported it was difficult or very difficult to pay their usual household bills in the last month.

Across all adults, 23% were finding it hard to pay bills, up from 17% last November.

Over 40% of adults were finding energy bills particularly difficult in March (just before the 54% hike in the energy price cap this month).

Tenants are also being hit by rising rents, according to the ONS’s latest research on the rising cost of living.

Here’s the details:

  • Around 9 in 10 (87%) adults reported an increase in their cost of living over the previous month in March 2022 (16 to 27 March 2022), an increase of 25 percentage points compared with around 6 in 10 (62%) adults in November 2021.

  • Nearly a quarter (23%) of adults reported that it was very difficult or difficult to pay their usual household bills in the last month, compared with a year ago; an increase from 17% in November 2021.

  • Focusing on the latest period, among those who pay energy bills, around 4 in 10 (43%) reported that it was very or somewhat difficult to afford their energy bills in March.

  • Of adults currently paying off a mortgage and/or loan, or rent, or shared ownership, 30% reported that it was very or somewhat difficult to afford housing costs, and 3% claimed to be behind on rent or mortgage payments. Among all adults, 17% reported borrowing more money or using more credit than they did a year ago.

  • Among all adults, 43% reported that they would not be able to save money in the next 12 months; this is the highest this percentage has been since this question was first asked in March 2020.

Updated

Palm oil prices have jumped today after top producer Indonesia announced a ban on exports of cooking oil, a move that could add to food inflation.

Indonesia’s government announced on Friday that shipments will be halted from April 28, and not resume until a domestic shortage resolved.

Benchmark palm oil futures have jumped as much as 7% following the surprise announcement.

Bloomberg says:

The move by Indonesia, which accounts for a third of global edible oil exports, adds to a raft of crop protectionism around the world since the war erupted in Ukraine, as governments seek to protect their own food supply with agriculture prices surging.

The ban threatens to further fan food inflation, which has been surging at a rampant pace, and raises the risk of a full-blown hunger crisis.

German business morale rises despite Ukraine war

German business confidence has stabilised. at a low level, after slumping in March as high energy prices and the Ukraine war hit firms.

The business climate index released by the IFO institute has risen to 91.8 points in April from 90.8 points in March, better than the 89.1 expected.

Although current conditions were little changed, firms were less pessimistic about their outlook, suggesting the German economy is holding up in the face of economic uncertainty.

Ifo President Clemens Fuest said.

“After the initial shock of the Russian attack, the German economy has shown its resilience.

IFO says it doesn’t see Germany falling into recession in the first quarter of this year, but flags that China’s lockdowns will affect its economy in the coming months.

Last Friday, the Bundesbank warned that an immediate embargo on Russian gas imports would plunge Germany into recession, and cost the equivalent of €165bn (£138bn) in lost output this year.

Updated

The selloff in London is gathering pace, with the FTSE 100 index now down 2.15% or 161 points at 7358 points, a fresh five-week low.

Pound hits 18-month low against the dollar

Elsewhere in the markets, the pound has hit its lowest level against the US dollar since September 2020.

Sterling has dropped by almost a cent to $1.2750, adding to its tumble on Friday.

The pound has been hit by weak economic data, including a tumble in retail sales in March as the cost of living crisis hit spending.

The prospect of aggressive rate hikes by the US Federal Reserve is driving up the dollar.

Worries that the Chinese economy is heading for a sharp slowdown this quarter are hitting markets today, says the strategy team at Saxo Bank:

White-knuckle markets after an ugly close Friday on Wall Street spilled into the Monday session in Asia, with concerns of new strict Covid lockdowns in Beijing driving an ugly move lower in Chinese equities and a steep drop in crude oil.

Also, the sudden Chinese decision to weaken its currency at a blistering pace last week has unsettled currency markets, driving an sharp acceleration lower in EM [emerging market] currencies in particular.

The copper price has hit a one-month low in London this morning.

Concerns over demand from China’s factories, and the prospect of several US interest rate rises this year, knocked copper. It has dropped by 1.5% to $9,961 per tonne, the lowest since 16 March.

China market's worst day since February 2020

Residents and office workers wearing face masks line up for mass coronavirus testing outside a commercial office complex at the central business district in Beijing.
Residents and office workers wearing face masks line up for mass coronavirus testing outside a commercial office complex at the central business district in Beijing. Photograph: Andy Wong/AP

China’s benchmark stock index has suffered its worst day since early in the pandemic, after a day of heavy selling.

The CSI 300 index has closed down 4.94% today, its biggest one-day drop since February 2020, as Beijing’s largest district begins mass-testing and Shanghai’s lockdown enters its fourth week.

The CSI 300, which tracks the top 300 companies traded in Shanghai and Shenzhen, tumbled by 198 points to close at 3,815 points, its lowest since May 2020.

Traders are anticipating export disruption, and a hit to growth, as China tries to stamp out Covid-19 cases, as Jeffrey Halley of trading firm OANDA explains:

China has tightened parts of the Shanghai lockdown, including erecting fences around apartment buildings with Covid-19 infected individuals. Meanwhile, residents of the Chaoyang district of Beijing will have to submit to three days of testing to get on top of the omicron outbreak there, with parts of it “sealed” or “controlled,” to paraphrase Bloomberg’s story this morning. Although some parts of China have been under restrictions longer than Shanghai, omicron’s arrival in Beijing would be an ominous development.

It is important to remember that although market darlings like Tesla and Foxconn are operating normally in China under a “closed-loop,” and China is vigorously playing whack-a-mole across the country to enforce the Covid-zero policy, omicron only has to get lucky once, while those manning the ramparts have to get lucky 100% of the time. Just ask any other previously Covid-zero country.

The difference here is that China is the world’s second-largest economy and has shown no signs it intends to live with the virus.

It would be a brave man that bets on President Xi Jinping backtracking on anything he says he is going to do, or on the government in general. With that in mind, the likely pressure valve is going to be disruption to China’s export machine, and a cratering of consumer confidence.

Here’s the mood in the markets:

Updated

There’s no sign of a Macron relief rally in Europe today.

European stocks have hit their lowest in over a month, as anxiety over China’s economy and the prospect of US interest rate rises overshadow last night’s French presidential election result.

The pan-European Stoxx 600 index is down 1.65%, the lowest point since 16th March, with France’s CAC index sliding 1.7% and Germany’s DAX off 1.4%.

Victoria Scholar, head of investment at interactive investor, says:

Despite some political relief in Europe after Macron’s victory, European markets have been overshadowed by broader macro concerns opening under pressure and taking their cues from the sharp sell-off on Wall Street on Friday and in China overnight.

The FTSE 100 has broken below support at 7,400 with China sensitive stocks in the mining sector like Glencore, Anglo American, Rio Tinto leading the leg lower.”

FTSE 100 hits five-week low

The UK’s stock market has opened sharply lower, as China concerns knock the benchmark index down around 1.5%.

The FTSE 100 is currently off by 115 points at 7406 points, its lowest in five weeks, with almost every member in the red.

Mining and commodity stocks are leading the fallers, such as Glencore (-5.5%), Anglo American (-4.5%) and Rio Tinto (-4%).

Insurance group Prudential (-3.5%) which is focused on Asia-Pacific markets, and oil giants Shell (-2.9%) and BP (-3.5%) are also weaker.

Richard Fletcher, business editor of The Times, has tweeted the details:

Updated

Fears about the economic toll of China’s strict Covid Zero policy have pushed its currency, the yuan, to a one-year low.

Bloomberg has the details:

The benchmark CSI 300 Index dropped more than 4% to the lowest since May 2020, wiping out gains from a March pledge by officials to support the economy. The onshore yuan fell to its weakest in a year on concerns about rising capital outflows and oil sank below $100 on worries over Chinese demand.

Concerns over the outbreaks in Shanghai and Beijing are echoing through global markets, Bloomberg adds:

“There are concerns about the Covid situation in Beijing evolving into what happened in Shanghai with some prolonged lockdowns that bites the economy,” said Kevin Li, portfolio manager at GF Asset Management (Hong Kong) Ltd.

Traders are balking at the potential impact of coronavirus restrictions on growth in the world’s second-largest economy, which was already showing signs of slowing down thanks to a property crisis and increased regulation. The growth fears come amid China’s widening policy divergence with the U.S., which has led to foreign outflows and weighed on the yuan.

Molten iron being poured into a container at a steel plant in Hefei, Anhui province, China
Molten iron being poured into a container at a steel plant in Hefei, Anhui province, China Photograph: Jianan Yu/Reuters

Iron ore and steel futures have slumped today on worries that Shanghai’s extended lockdown will hit demand.

Concerns that other parts of China, such as Beijing, could see similar curbs also hit metal prices.

Marketwatch has the details:

The most-traded September iron ore contract on the Dalian Commodity Exchange fell as much as 11% on Monday. They were recently 8.4% lower at 815.0 yuan ($125.35) a metric ton. Iron ore futures in Singapore also declined by as much as 11% in response to the negative sentiment and were recently 6.2% lower at $141.40 a ton.

The most actively traded October steel rebar futures contract on the Shanghai Futures Exchange fell 3.2% to CNY4,857 a ton.

“Intensifying risks presented in rising virus infections [are driving] a need to stay cautious,” said IG market strategist Yeap Jun Rong.

On Friday, Shanghai authorities announced that strict lockdown measures would continue until Covid-19 was eradicated, neighbourhood by neighbourhood, in a push to achieve “community zero-Covid as soon as possible.”

Oil prices tumbles 4%

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.

Updated

Introduction: China lockdown worries hit markets

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 sent 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 index 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.

Reuters reports:

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 signified, 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.

The agenda

  • 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

Updated

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