Global stocks slump on China lockdowns, interest rates

London: World stock markets mostly sank on Monday as China´s Covid lockdowns added to stubborn fears over the impact of rising US interest rates and surging inflation.

Frankfurt, London and Paris all fell more than two percent, as did Tokyo. The Dow Jones Industrial Average fell 535.34 points, or 1.63 percent, to 32,364.03, the S&P 500 lost 102.07 points, or 2.48 percent, to 4,021.27 and the Nasdaq Composite dropped 399.65 points, or 3.29 percent, to 11,745.01.

The pan-European STOXX 600 index lost 2.52 percent and MSCI's gauge of stocks across the globe shed 2.54 percent, on Monday hitting its lowest level since December 2020.

Emerging market stocks lost 1.68 percent after MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.69 percent lower. Japan's Nikkei had lost 2.53 percent.

“The bloodletting on stock markets has continued today as we start a new week ... with the biggest declines being seen in basic resources after the latest China trade data showed that imports ground to a halt in April," said market analyst Michael Hewson at CMC Markets UK.

Millions of people in Beijing stayed home on Monday as China´s capital tries to fend off a Covid-19 outbreak with creeping restrictions on movement.

Beijing residents fear they may soon find themselves in the grip of the same draconian measures that have trapped most of Shanghai´s 25 million people at home for weeks.

Lockdowns across dozens of Chinese cities -- from the manufacturing hubs of Shenzhen and Shanghai to the breadbasket of Jilin -- have wreaked havoc on supply chains over recent months and further stoked global inflationary pressures.

“Markets are continuing to re-price inflation risks as it becomes more evident that inflation is likely to be with us for longer than some people had hoped," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina, also citing increasing recession risks.

And he said moves by policy makers around the world to raise rates higher than expected will add to economic "slowdown pressures that are already building due to the lockdowns in China and the war in Europe.”

Investors were given more bad news on Monday as China´s April exports slumped to their lowest level in almost two years, due to the nation´s strict zero-Covid policy.

Exports plunged to 3.9 percent on-year, while imports were stagnant for April. Data also showed the lockdowns have already hit oil demand in China, prompting a five percent drop in oil prices.

Stock markets had dived last week after the Federal Reserve ramped up interest rates by a half-percentage point and flagged more hikes to tackle decades-high inflation.

"Anxiety is stemming from the Fed´s next moves, with uncertainty creeping in about the scale and speed of interest rate hikes," said Hargreaves Lansdown analyst Sophie Lund-Yates.

Analysts at Charles Schwab brokerage said that "elevated inflation pressures continue to cloud conviction, with the Fed and other central banks beginning to tighten monetary policy.

"Meanwhile, inflation concerns continue to be exacerbated by the war in Ukraine and ongoing supply chain challenges," they added. Global markets have also taken a beating this year from Russia´s invasion of Ukraine.