Yuan slides as China Covid unrest continues.
My colleague Vijeta Uniyal had a fantastic summary of the protests in China against nationwide covid lockdown measures imposed by the Communist regime, which appear to be gaining momentum.
In the wake of those protests, uncertainties about China’s economic future are beginning to take hold. There are already signs of global economic consequences to the lockdowns and the subsequent demonstrations.
Stocks and oil slid sharply on Monday as rare protests in major Chinese cities against the country’s strict zero-COVID curbs raised worries about management of the virus in the world’s second-largest economy.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) slumped 2.2%, pulled lower by heavy selling in Chinese markets.
Hong Kong’s Hang Seng Index (.HSI) shed 4.16%, China’s CSI300 Index (.CSI300) declined 2.22% and the yuan fell in morning trade.
“The market does not like uncertainties that are difficult to price and the China protests clearly fall into this category. It means investors will become more risk-averse,” Gary Ng, Natixis economist in Hong Kong told Reuters.
“The China-linked markets across Asia, such as Australia, Hong Kong, Taiwan and Korea, are more likely to see a larger impact.”
Oil futures also fell substantially.
Oil futures fell more than $2 a barrel on Monday, with WTI hitting an 11-month low, as protests in top importer China over strict COVID-19 curbs fuelled demand concerns.
Brent crude dropped $2.16, or 2.6%, to trade at $81.47 a barrel at 0230 GMT, after diving to $81.16 earlier in the session — its lowest since Jan. 11.
U.S. West Texas Intermediate (WTI) crude slid $2.08, or 2.7%, to $74.20 a barrel. It fell as far as $73.82 earlier — its lowest since Dec. 27, 2021.
Both benchmarks, which hit 10-month lows last week, have posted three consecutive weekly declines. Brent ended the latest week down 4.6%, while WTI fell 4.7%.
“On top of growing concerns about weaker fuel demand in China due to a surge in COVID-19 cases, political uncertainty, caused by rare protests over the government’s stringent COVID restrictions in Shanghai, prompted selling,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.
Base metal prices have also fallen in recent weeks due to the lockdowns and subsequent unrest.
Three-month copper on the London Metal Exchange was down 1.1% at $7,988 a tonne, as of 0156 GMT, its lowest since Nov. 10.
The most-traded December copper contract on the Shanghai Futures Exchange dipped 1.5% to 64,900 yuan ($9,057.04) a tonne, its lowest since Nov. 4.
There is some karmic good news to be had, especially in light of China’s antics at the start of the pandemic. The yuan has fallen against the dollar, in response to the demonstrations as well as the continuing covid-zero restrictions.
THE yuan fell, the Australian dollar led commodity currencies lower and the greenback strengthened against most major peers as protests in China against Covid curbs cast a shadow over risk sentiment in global markets.
Before it becomes clear how Beijing will respond to the latest surge in discontent, the threat of rising social instability and a government crackdown will likely prompt investors to shift towards haven assets such as the dollar, yen and Treasuries. Rising risks may also weaken demand for stocks, commodities and currencies tied to trade with China, including the Aussie and South African rand.
The dramatic turn of events adds fresh uncertainties to the outlook for the world’s second-largest economy and its markets, just as some recent loosening of virus controls and sweeping property rescue efforts have helped Chinese stocks stage a remarkable rebound. The protests, triggered by a deadly fire in an apartment block under lockdown in a western city, also threaten to further dilute a moderate, well-anticipated monetary easing step by China’s central bank on Friday (Dec 2).
“Sentiment may take a hit as the protests fuel concern over social instability in China and foreign investors may trim exposure to Chinese investment,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. “It appears that the Zero Covid policy is reaching its tipping point. More easing or refinement on the Covid measures will be needed to curb discontent.”
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