US stocks plunge, dollar rises as China sticks to pandemic policy

  • Dollar up as Beijing reaffirms tough pandemic rules
  • Markets vulnerable to pullback after Friday’s rally
  • S&P 500, Nasdaq futures regain ground
  • Oil retreats with commodities

SYDNEY, Nov 7 (Reuters) – U.S. equity futures fell in Asia on Monday after Beijing denied considering easing its zero COVID-19 policy, helping the dollar recoup some losses while inflicting a setback on the oil and raw materials.

Risky assets had rallied on Friday amid speculation that China was preparing to ease its pandemic restrictions, but over the weekend health officials reiterated their commitment to the ‘dynamic clearing’ approach. COVID cases as soon as they emerge. read more read more

“Despite the denial, notions that China will swing into life with COVID in the new year are unlikely to be quashed given the very real toll zero-COVID is taking on the economy,” Tapas said. Strickland, head of market economics at NAB.

“With China heading into winter, most analysts think a zero-COVID shift is unlikely until at least March.”

Speculation that China could open up its economy saw copper jump 7% on Friday in its biggest one-day rally since 2009, while a range of resources all benefited from hopes of increased demand.

It also pushed the yuan higher and triggered a series of profit-taking on long US dollar positions, especially against commodity-sensitive currencies such as the Australian dollar.

Some of that reversed early on Monday, with the Aussie down 0.8% to $0.6414 after jumping 3% on Friday. The dollar gained 0.6% against the offshore yuan.

The US dollar index rebounded 0.4% after plunging nearly 2% at the end of last week. The dollar edged up to 147.00 yen, while the euro eased 0.4% to $0.9920.

S&P 500 futures fell 0.7%, while Nasdaq futures lost 0.8%. MSCI’s broadest Asia-Pacific ex-Japan equity index (.MIAPJ0000PUS) gained 0.4%.

Risk sentiment at the fringe was bolstered by reports that the White House is privately encouraging Ukraine to signal an openness to negotiate with Russia. Read more

Dealers were still digesting a mixed U.S. jobs report that showed strong gains in the payroll survey but weakness in the less reliable household unemployment survey. Read more

On Friday, four Federal Reserve policymakers indicated they would still consider a lower interest rate hike at their next policy meeting, sounding less hawkish than Chairman Jerome Powell. Read more

There are at least seven Fed officials due to speak this week, which will help sharpen the rate outlook, with markets now tilting narrowly towards a half-point rate hike next month at 4.25-4.5%.

“We maintain that the Fed will see sufficient progress on inflation to stop at 4.75% in February, but the risks are skewed by further hikes that will likely lead to a recession later in 2023 or early 2024. “, said Bruce Kasman, head of economic research. at JPMorgan.

Short-term Treasuries managed a slight rally on Friday with two-year yields rising to 4.66% and highs not seen since 2007.

The market faces a major hurdle on Thursday in the October US consumer price release, with any upside surprises set to test hopes of a taper in Fed hikes.

The median forecast calls for annual CPI inflation to slow to 8.0% and the core index to dip to 6.5%.

Also of note is the U.S. midterm elections on Tuesday where Republicans could take control of one or both chambers and lead to a stalemate on fiscal policy.

In commodity markets, gold fell to $1,677 an ounce after jumping more than 3% on Friday.

Oil futures lost some of their gains with Brent at $1.79 to $96.78, while U.S. crude fell $1.71 to $90.90 a barrel.

Reporting by Wayne Cole; Editing by Daniel Wallis

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