Fears about the worsening of the Covid-19 situation in China are adding up to downward momentum. On Monday, Dow futures fell 305 points, or 0.9%, while futures on the S&P 500 and Nasdaq fell 1%.
Beijing, China’s capital with 21 million residents, began mass testing over the weekend and closed residential complexes, raising concerns that tighter restrictions in line with other Chinese cities could soon be implemented.
“Although parts of China have been under restrictions longer than Shanghai, Omicron’s arrival in Beijing would be an ominous development,” Jeffrey Halley, senior market strategist at Oanda, wrote on Monday.
“China is the second largest economy in the world and has shown no signs that it intends to live with the virus,” he said. “With that in mind, the likely pressure valve will be a disruption to China’s export machinery and a crater in consumer confidence.”
Oil prices tumbled on Monday as concerns about faster rate hikes in the US and a slowdown in China weighed on sentiment. Futures for US oil and Brent crude, the international benchmark, fell more than 4%.
“It appears that China is the elephant in the room and markets feel that China’s growth slowdown could materially change the supply/demand equation in international markets,” Halley said.
Pressure to contain the outbreak in Beijing comes as cases continue to grow in Shanghai. The closure in Shanghai has already forced many factories to halt production and worsened shipping delays, threatening to hit its vast economy and put further pressure on global supply chains.
Shanghai reported more than 19,000 new cases and 51 deaths on Sunday.