Oil markets are sharply lower as China struggles to get a grip on a Covid outbreak, hitting demand

London (AFP) - Stock markets and oil prices sank Monday on growing concern that lockdowns in China aimed at fighting a worsening Covid outbreak could further harm a world economy battling decades-high inflation.

The losses extended last week’s sell-off triggered by Federal Reserve boss Jerome Powell indicating that the US central bank would hike interest rates by half a percentage point next month and possibly several times more this year.

That has lent strong support to the dollar, which is benefitting also from its traditional haven status.

Dollar-denominated oil prices at one point tumbled more than five percent Monday.

Among the world’s major stock markets, Shanghai led the losses, closing down more than five percent.

In Europe, Paris shed 2.2 percent in afternoon deals.

French President Emmanuel Macron is set to begin efforts to unite a deeply divided nation after winning re-election Sunday in a battle against rival Marine Le Pen that saw the far right come its closest to taking power.

The euro and yuan slid against the dollar, while sterling lost one percent to hit a 19-month low at $1.2705.

“The markets have fallen out of bed… in a big way,” noted AJ Bell investment director Russ Mould.

“The prospect of further restrictions in China could lead to a poisonous mix of further inflationary pressure, as supply chains in the so-called ‘factory of the world’ get disrupted, and weaker economic growth.”

Officials in finance hub Shanghai reported 51 deaths Monday, its highest daily toll despite weeks of strict containment measures, while Beijing warned of a “grim” situation as infections rise.

Investors were already fleeing risk assets as they become worried that the Fed tightening will knock the pandemic economic recovery off course and dent companies’ bottom line.

“The surge in energy, as well as food prices, has started to see consumers prioritise where they spend their money,” noted Michael Hewson, chief market analyst at CMC Markets UK.

Oil prices sank Monday on fears that China’s worsening Covid outbreak could slam demand from the major energy consumer.

“As China is the second largest economy in the world, the situation… has a big impact on commodity markets,” said XTB analyst Walid Koudmani.

Metals prices also slumped on Monday, as did share prices of energy and mining companies.

Elsewhere in Asia, Sri Lanka’s stock market halted trading after a nearly 13 percent plunge as the island nation’s beleaguered government is under pressure to resign over a crippling economic crisis.

- Key figures at 1130 GMT -

London - FTSE 100: DOWN 2.0 percent at 7,370.04 points

Paris - CAC 40: DOWN 2.2 percent at 6,436.23

Frankfurt - DAX: DOWN 1.6 percent at 13,921.26

EURO STOXX 50: DOWN 2.1 percent at 3,761.29

Tokyo - Nikkei 225: DOWN 1.9 percent at 26,590.78 (close)

Hong Kong - Hang Seng Index: DOWN 3.7 percent at 19,869.34 (close)

Shanghai - Composite: DOWN 5.1 percent at 2,928.51 (close)

New York - Dow: DOWN 2.8 percent at 33,811.40 (close)

Brent North Sea crude: DOWN 3.9 percent at $102.53 per barrel

West Texas Intermediate: DOWN 4.1 percent at $97.91 per barrel

Euro/dollar: DOWN at $1.0735 from $1.0801 late on Friday

Pound/dollar: DOWN at $1.2739 from $1.2834

Euro/pound: UP at 84.28 pence from 84.14 pence

Dollar/yen: DOWN at 128.38 yen from 128.51 yen

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