China stocks fell to their lowest level in two years Monday as rising COVID cases increase fears of a wider lockdown in Beijing.
Investors dumped shares, worrying that the country's easy monetary policy may be no match for the effects of the zero-tolerance COVID stance. The U.S. dollar is up about 1% against the yuan.
"There is no shortage of blood on the financial market dancefloor this morning," SocGen's Kit Juckes wrote. "A poor equity market close on Friday rather set us up for it, but the war in Ukraine, the threat to the Chinese economy of Covid restrictions, and the monetary policy rhetoric, led by the Fed but followed all over the world, make a potent cocktail."
"The straw to cling to, is that it’s Monday, and this is, mostly, an extension of a move based on last week’s concerns, rather than a new move. It’s not much of a straw because the key themes aren’t going to change."
The prospect of further global supply chain disruptions is pushing stock volatility higher and cash is moving away from risk.
The S&P VIX (VIXX) +4.8% is above 29.
The risk-off move arrested the selloff in Treasuries, with yields moving sharply lower.
The 10-year yield is down 8 basis points to 2.83%, while the 2-year is off 11 basis points to 2.61%.
Traders are also preparing for the busiest week of earnings season, with 160 companies in the S&P 500 set to report quarterly results. Of particular note is the Big Tech companies, including Alphabet, Amazon, Apple, Meta and Microsoft. Earnings are set to rise 6.6% Y/Y for the quarter, according to FactSet, but last week's disaster at Netflix remains fresh in investors' minds, with shares of the once-FAANG participant collapsing after losing subscribers for the first time in a decade.
On the M&A front, Twitter reportedly met with Elon Musk on Sunday as is looking more receptive to the Tesla founder's bid.