Asian shares stall, oil prices fall as China lockdown hits supply chain

151
3
Asian shares stall, oil prices fall as China lockdown hits supply chain

A man wearing a protective mask walks past an electronic board displaying graphs top of the Nikkei index outside a brokerage in Tokyo amid the coronaviruses disease COVID 19 outbreak.

SYDNEY Reuters -- Asian shares stalled and oil prices fell on Monday as the coronaviruses lockdown in Shanghai looked set to hit global activity, while adding more wrench into supply chains that could add to inflationary pressures.

China's financial hub of 26 million people told all firms to suspend manufacturing or have people work remotely in a two-stage lockdown over nine days.

The spread of restrictions in the world's biggest oil importer saw Brent fall $3.68 to $116.97, while U.S. crude fell $3.30 to $110.60. O R Risk sentiment was helped by hopes of progress in Russian-Ukranian peace talks to be held in Turkey this week after President Volodymyr Zelenskiy said Ukraine was prepared to consider adopting a neutral status as part of a deal.

Early action was muted with MSCI's broadest index of Asia-Pacific shares outside Japan off 0.1%. The index is off 2.3% for the month, but is well above recent lows.

Japan's Nikkei dropped 0.4%, but is still almost 6% firmer for the month, as a sinking yen promised to boost exporter earnings.

Wall Street has proved remarkably resilient to a hawkish Federal Reserve. Markets are pricing in eight hikes for the remaining six policy meetings this year, taking the funds rate to 2.50 -- 2.75%.

The outlook is not aggressive enough for some. Citi predicted 275 basis points of tightening this year, including half-point hikes in May, June, July and September.

The Fed is expected to hike into 2023, reaching a policy rate target range of 3.5 -- 3.75%, according to analysts at Citi. The upside risk to the terminal policy rate remains on the upside, because of the upside risk to inflation. The U.S. payrolls will be on Friday when there will be another solid increase of 475,000, with the jobless rate hitting a new post-pandemic low of 3.7%. There are a lot of surveys on global manufacturing and readings on U.S. and EU inflation.

The U.S. data will shape expectations of whether the tightening of financial conditions will spill into the broader economy, according to analysts at NatWest Markets.

Yields on 10 year Treasuries went up 33 basis points last week and are up 66 basis points on the month at 2.48%, a sharply lifting U.S. mortgage rates.

The Japanese yen has lost ground in currency markets as policy makers there keep yields around zero and sky-high commodity prices send its import bill ballooning.

The dollar has risen 6.2% on the yen this month to reach 122.18, while the resource-rich Australian dollar has climbed almost 10% to 91.88 yen.

Even the euro is up 4% on the yen this month, at 134.27. The single currency has lost 2.1% of its value in the past two years, but it is above the recent two-year trough of $1.0804.

The U.S. dollar index was up at 98.848, with a gain of 2.2% for the month.