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China’s Covid unrest sends stocks lower, boosting USD strength

Stock markets

Risk-off sentiment prevailed in broad markets due to China’s Covid unrest on Monday. An unprecedented protest against the recent Covid controls in China has sent equities lower, with all three benchmark US indices down more than 1%, while the US dollar regained supreme, pressuring the other major G-10 currencies and commodity prices. Apple’s shares sank 2.8% amid the iPhone factory Foxconn’s Covid turmoil, dragging on growth stocks. However, the US-listed Chinese tech shares showed resilient moves overnight, and the Hang Seng Index futures are also pointing to a higher open today, suggesting that China’s reopening optimism may continue to support the month-long Chinese stocks’ rebound. Notably, Chinese economic growth-sensitive commodities, both copper and crude oil have also bounced off session lows, hinting the stimulus measures taken by Beijing may also cushion its economic downfalls, despite the Covid disruption.

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  • The S&P 500 pulled back to below 4,000, and Dow fell under 34,000. All the 11 sectors in the S&P 500 finished lower, with Energy and Real Estate leading losses, down 2.8% and 2.9%, respectively. Apple dragged growth stocks down, with Technology falling 2.3%. The defensive stocks, including Consumer Staples and Communication, Services outperformed but also slid 0.3% and 0.7%, respectively. 
  • Apple’s shares dropped 2.8% amid China’s production disruptions. According to Bloomberg, the Covid – induced turmoil at Apple’s key manufacturer, Foxconn Technology Group may lead Apple to lose production of 6 million iPhone Pro units this year.
  • Crude oil bounced off session lows on expectations for a further production cut by OPEC and allies. The cartel signalled that more output reduction may be on the table after the 2 million bpd supply curb in November to support the oil prices amid weakened demand outlooks. The members will meet on 4 December.
  • Gold futures fell due to a strengthened US dollar and higher bond yields. The precious metal’s prices have been negatively correlated with the USD and bond yields this year. Despite a decline on Monday, gold is still heading to the first monthly positive close of 6% since March and it is still on a rebounding pace from a technical perspective.
  • Crypto lender BlockFi files for Chapter 11 bankruptcy due to the FTX’s rippling effect. In the filing, the company has more than 100,000 creditors with liabilities and assets between $1 billion and $10 billion. It also listed an outstanding $257 million loan to FTX US. Both Bitcoin and Ethereum slipped in the last 24 hours.
  • The Chinese Yuan plummeted to a two-week low against the US dollar, with USD/CNH jumping to 7.25, or 0.8%,  at AEST 8:15 am due to the current Covid unrest in the country, sparking the country’s economic concerns. The US dollar is seen as a haven currency as risk-aversion sentiment prevailed in the broad markets on Monday. 
  • Asian equity markets are set to open mixed. ASX futures were slightly up 0.07%, Nikkei 225 futures slipped 0.21% and Hang Seng Index futures climbed 1.17%.

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