China worries weigh on global stocks

The spread of Covid across China and the resulting lockdowns have dealt a severe blow to the country's economy and has rattled global markets. ©AFP

London (AFP) - Stock markets mostly fell Tuesday as investors worried about the impact of the Covid outbreak in China and rising interest rates in the United States.

Wall Street failed to get any momentum from Monday's gains and a relief rally in Europe faded as the day wore on.

The European single currency hit a two-year low against the dollar, which was boosted by its haven status amid Ukraine turmoil.

But world oil prices rebounded from heavy losses in recent days on fears over weaker Chinese demand.

"The inability of equity markets to hold on to today’s initial gains doesn’t bode particularly well and speaks to a general lack of confidence more broadly about the economic outlook, and the ability of central banks to engineer a 'soft landing' as they look to tackle inflation," said market analyst Michael Hewson at CMC Markets.

Patrick J. O'Hare pointed out that even data showing a rebound in March of orders of US durable goods was not enough to turn around sentiment.

It is "another indication that market participants have their doubts about stronger economic activity persisting in the face of clear growth obstacles like hawkish-minded central banks and ongoing supply chain pressures that have been felt with China's lockdowns."

The tech-heavy Nasdaq Composite was down 3.0 percent ahead of earnings reports from Google-parent Alphabet and Microsoft, with were also down sharply.

The Omicron flare-up across China has led authorities to impose strict containment measures in its biggest cities, shutting off millions of people and threatening to deal a hammer blow to the world's number two economy.

Hong Kong stocks edged up but made only a small dent in the massive losses suffered the day before, while Shanghai extended the previous day's losses of more than five percent.

Sentiment was soothed somewhat after the People's Bank of China vowed to boost growth and consumption.

China's Covid measures have dealt a severe blow to its economy, leading to concerns about knock-on effects for the rest of the world -- given its reliance on Chinese-made goods.

The China crisis comes as traders grapple with a hawkish Fed, which is struggling to control inflation that sits at a more than 40-year high.

US central bank policymakers have said they are keen to lift rates several times this year to get a grip on prices, with boss Jerome Powell indicating a half-point rise next month followed by more before January.

Added to the picture, the Ukraine war has sparked additional markets turmoil owing to the impact on commodity prices and inflation.

Oil prices recovered somewhat from sharp losses in recent days.

"Oil prices have rebounded modestly after yesterday’s sharp sell-off as investors look to balance how much of an effect a sharp slowdown in demand from China will have when set against the resilience of demand elsewhere, in relation to global inventories," said CMC Markets' Hewson.