Asian stocks fell again as rising Covid-19 cases in China darkened the mood on trading floors already concerned about the threat of recession.

Beijing’s most populous district urged residents to stay home on Monday as the number of Covid cases in the city rose, while at least one district in Guangzhou was locked down for five days.

This only added to the general unease among investors worried about rising inflation and central bank tightening, particularly in the United States.

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Japan’s Nikkei managed to hold onto some small gains, but the worsening Covid situation in China dominated the session.

Japan’s Nikkei stock average was flat, as was the broader Topix, although volumes were expected to be light due to the US and Japanese holidays later in the week.

The benchmark Nikkei 225 index gained 0.16% or 45.02 points to end at 27,944.79. The Topix index rose 0.28%, or 5.54 points, to 1,972.57.

“Financial markets are trying to balance the possibility of further rate hikes against the extent to which the US and global economy will slow,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.

The eruption of new Covid outbreaks across China has been a setback to hopes for a quick easing of tough pandemic restrictions, one of the reasons cited for a 10% drop in oil prices this week last.

Chinese blue chips fell 1.5% in early trading, dragging MSCI’s broadest index of non-Japan Asia-Pacific stocks down 1.3%.

The Shanghai Composite Index fell 0.39%, or 12.20 points, to 3,085.04, while the Shenzhen Composite Index on China’s second-largest stock exchange fell 0.04%, or 0, 81 points, at 2,028.51.

Meanwhile, Hong Kong Hang Seng Index fell 1.87%, or 336.63 points, to close at 17,655.91.

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Elsewhere in the region, South Korean stocks fell 1.1% while Indian stocks fell with Mumbai’s Nifty 50 index down 0.81%, or 147.70 points, to close at 18,159 .95.

Globally, S&P 500 futures fell 0.4%, while Nasdaq futures fell 0.3%. EUROSTOXX 50 Futures lost 0.3% and FTSE futures lost 0.2%.

The Thanksgiving holiday in the United States on Thursday, combined with the distraction of the FIFA World Cup, could lead to lower trade this week, while Black Friday sales will offer a glimpse of the situation for consumers and the outlook for retail stocks.

Minutes from the U.S. Federal Reserve’s latest meeting are due on Wednesday and could appear hawkish, judging by how officials have pushed back on market easing in recent days.

There are at least four Fed officials due to speak this week, a taste of Chairman Jerome Powell’s November 30 speech that will set the outlook for rates at the December policy meeting.

Bond markets clearly think the Fed will tighten too much and tip the economy into recession, as the yield curve is at its highest level in 40 years.

On Monday, 10-year bond yields of 3.81% traded 71 basis points below two-year bonds.

Central banks in Sweden and New Zealand are expected to raise rates this week, possibly by 75 basis points.

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The Fed’s chorus helped the dollar stabilize after its recent strong sell-off, although speculative positioning in futures turned sharply short on the currency for the first time since mid-2021.

On Monday, the dollar was little changed at 140.31 yen, following last week’s rebound from a low of 137.67. The Euro fell slightly to $1.0313, well below the recent four-month high of $1.1481.

The US dollar index strengthened 0.2% to 107.080, off last week’s low at 105.300.

Meanwhile, the turmoil in cryptocurrencies has continued unabated with exchange FTX filing for protection in US bankruptcy court, saying it owes its 50 largest creditors nearly of $3.1 billion.

In commodity markets, gold was slightly lower at $1,747 an ounce, after falling 1.2% last week.

Oil futures failed to find a bottom after last week’s beatings saw Brent lose 9% and WTI around 10%.

Key figures

Tokyo – Nikkei 225 > UP 0.16% to 27,944.79 (closing)

Hong Kong – Hang Seng Index

Shanghai–Composite

London – FTSE 100

New York – Dow > UP 0.59% to 33,745.69 (close Friday)

• Reuters with additional editing by Sean O’Meara

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