European stocks declined and equities across Asia fell on Thursday as concerns about the spread of Covid-19 from China weakened risk appetite in one of the final trading days of the year.
Food and beverage shares led the decline in the Stoxx Europe 600 index along with retailers amid concerns that new supply-chain disruptions will fuel inflation. Equity benchmarks in Japan, China, Australia and South Korea fell on thin trading volume. Contracts for the S&P 500 fluctuated after the index slid 1.2% to the lowest level in more than a month.
The 10-year Treasury yield fell about four basis points and a gauge of the dollar slipped.
Appetite for risk waned on news that the US would require inbound airline passengers from China to show a negative Covid-19 test prior to entry. In Italy, health officials said they would test arrivals from China after almost half of passengers on two flights from China to Milan were found to have the virus.
Hong Kong removed limits on gatherings and testing for travelers in a further unwinding of its last major Covid rules, offering a boost to the global economy but sparking concerns it would amplify inflation pressures and prompt US policy makers to maintain tight monetary settings.
China’s reopening “complicates the Fed’s job with respect to putting a little bit of a bid under oil prices, putting a little bit of a bid under inflation globally, to aggregate demand,” said Sameer Samana, senior global market strategist for Wells Fargo Investment Institute, on Bloomberg TV. “That’s going to be one of the biggest things that we’ll be watching in the first half.”
Data released Wednesday showed the Federal Reserve’s aggressive tightening policy has taken a toll on the housing market. US pending home sales fell for a sixth consecutive month in November to the second-lowest on record. Borrowing costs have roughly doubled since the start of the year and home sales have been declining for months.
Elsewhere in markets, oil dipped amid thin liquidity as investors weighed the fallout from a Russian ban on exports to buyers that adhere to a price cap.
“We expect the economy to slow materially or enter recession at some point in 2023,” wrote Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments.
“A severe recession would be bearish for stocks, yet given the resilience of the US economy and the tight labor market, we are expecting a slowdown or shallow and brief recession. That could allow stocks to rally in the second half of 2023,” she said.
Key events this week:
- US initial jobless claims, Thursday
- ECB publishes economic bulletin, Thursday
Some of the main moves in markets:
- The Stoxx Europe 600 fell 0.5% as of 8:15 a.m. London time
- S&P 500 futures rose 0.1%
- Nasdaq 100 futures rose 0.4%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index fell 0.7%
- The MSCI Emerging Markets Index fell 0.6%
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.2% to $1.0628
- The Japanese yen rose 0.6% to 133.69 per dollar
- The offshore yuan rose 0.3% to 6.9792 per dollar
- The British pound rose 0.1% to $1.2036
- Bitcoin rose 0.2% to $16,550.09
- Ether rose 0.6% to $1,193.36
- The yield on 10-year Treasuries declined four basis points to 3.84%
- Germany’s 10-year yield was little changed at 2.50%
- Britain’s 10-year yield advanced one basis point to 3.67%
- Brent crude fell 1.4% to $82.07 a barrel
- Spot gold rose 0.2% to $1,808.75 an ounce