What’s driving markets

Investors started the week in a downbeat mood as a fresh flare up of China COVID-19 concerns added to the angst about prospects for the global economy.

Beijing imposed at the weekend stringent restrictions across a number of cities to tackle the emergence of the highly contagious BA.5 Omicron sub-variant. China makes up more than a quarter of global manufacturing and any shutdown can hobble the worldwide supply chain, potentially causing further price spikes. The Shanghai Composite
SHCOMP,
-1.27%
dropped 1.3%.

The fall in U.S. equity index futures came after a 3% rebound for the S%P 500 last week when traders reasoned that the market’s recent drop to an 18-month low meant fears about inflation and slowing growth were factored in. A better than expected U.S. labor report, which showed a net 372,000 jobs added in June, also supported sentiment.

The U.S. second quarter earnings season kicks into gear on Thursday — with JPMorgan
JPM,
-0.31%
leading the way for the banking sector — and investors will now be keen to see just how much rising prices have impacted corporate profitability.
“This is a very important season (aren’t they all) as the collapse in equities so far in 2022 is largely due to margin compression and not really earnings weakness,” said analysts at Deutsche Bank.

Stephen Innes, managing partner at SPI Asset Management, said that the market will be focused on company guidance for coming quarters, and the post-earnings reactions will dictate the broader market risk appetite.

“While bears still see 10-15% more S&P 500 downside, increasing sympathy for a bull case is emerging (or at least a bear squeeze). We are already amid a shallow slowdown, which may be the best-case scenario for risk,” he said.

Twitter
TWTR,
-5.10%
shares lost 7% in premarket action after Elon Musk said he was withdrawing his bid. The company said it will try to enforce the $44 billion buyout.

Other markets

• The Hang Seng
  HSI,
  -2.77%
  in Hong Kong slumped 2.9% after China imposed big fines on Tencent
  700,
  -2.89%
  and Alibaba
  9988,
  -5.79%
  for not complying with disclosure rules. Japan’s Nikkei 225
  NIK,
  +1.11%
  bucked the regional trend, adding 1.1% after the country’s rulling coaltion expanded its majority in upper house elections.

• Waning risk appetite helped push investors into Treasuries, nudging 10-year bond yields
  TMUBMUSD10Y,
  3.073%
  down 4 basis points to 3.060%, and also boosted the dollar. The DXY
  DXY,
  +0.62%
  index rose 0.5% to 107.53 to flirt with 19-year highs.

• WTI crude
  CL.1,
  -2.31%
  fell 2.8% to $101.85 a barrel as economic slowdown worries reverberated.

• Gold
  GC00,
  -0.49%
  dipped 0.4% to $1736 an ounce and Bitcoin
  BTCUSD,
  -2.01%
  slid 3.7% to $20484.