Nervous markets scratch their heads over lockdown pain due to confusing China Covid policy
Despite a big relief rally at the back end of last week, US markets still couldn’t reverse the losses of the previous three days, closing lower for the first time in three weeks, although for European markets it was a somewhat different story.
The DAX finished higher for the fifth week in succession, posting its best daily close since August, as well as coming within touching distance of the 200-day SMA.
The FTSE100 also saw a strong session posting its best daily performance since the 4th
October, driven higher by unsubstantiated reports that the Chinese government is reported to be looking at a reopening strategy as it looks to navigate a path out of the straitjacket of its current zero-covid policy, CMC Chief Market Analyst Michael Hewson said this a.m.
“The big question as we head into a new week is whether the FOMO optimism that we saw at the end of last week was based on anything more than wishful thinking, when it comes to a China reopening,” Hewson said.
“Certainly, the progress seen with respect to China agreeing to a deal that allowed BioNTech to supply vaccines to Chinese expats is progress of sorts, as is the tweaking of restrictions around flight suspensions which penalised airlines that brought Covid cases into the country, but it’s an extremely long way from an economic re-opening.”
“Even in the best-case scenario, any reopening is unlikely to happen much before Q2 next year given the onset of winter, and the likely increased spread of infections that comes with the winter months.”
Analyst Michael Hewson
With Chinese officials offering little hint of a change in policy over the weekend the US dollar has rebounded, and markets have remained choppy in Asia, albeit they are still positive as the uncertainty from last week carries over into a new week.
This morning the latest China trade numbers for October showed the extent which China’s zero Covid policy is having on its economy as imports declined -0.7 per cent showing once again that internal demand remains weak.
“What was especially surprising was a complete collapse in exports which had been expected to remain resilient after rising 4.5 per cent in September. In October exports declined -0.3 per cent, which was the worst performance this year, as well as the worst performance in two and a half years,” Hewson stressed.
“The surprise slump also speaks to falling global demand for Chinese goods, as well as the continued disruption in supply chains caused by China’s zero-Covid curbs,” he added.
The focus this week is set to be once again dominated by the narrative coming out of China, as well as whether we get any further evidence that headline inflation in the US is continuing to slip back.
“The US mid-term elections aren’t expected to have that much of an effect on the markets,” Hewson concluded.