China Crackdown Fear Roils Global Markets

Barry Adams
28 Nov, 2022
New York City

Global markets sold off after protests spread to more cities in China sparking fear of a government crackdown and destabilizing the second largest economy in the world. 

Local authorities in China are struggling with the zero-Covid policy implementation and anger is mounting across the nation after months of lockdowns in smaller cities. 

About 400 million people in China are in various stages of lock down and sometimes a single infection in an apartment complex could force strict mobility restrictions on all residents. 

Global companies are increasingly shifting manufacturing away from China as zero-Covid linked supply chains are likely to persist. 

After three years of coronavirus pandemic, China, the only nation among large economies, is still struggling with rising infections. 

Coronavirus infections rose to a daily high of 44,000 over the weekend, but reported deaths in China are still less than a handful. 

Benchmark indexes opened lower and began to lose ground as the session advanced. Market indexes in the final hour accelerated the declines and closed near the lows of the session. 

The S&P 500 index declined 1.5% to 3,963.94 and the Nasdaq Composite index dropped 1.6% to 11,049.50. 

Crude oil rose 40 cents to $76.68 s barrel and natural gas declined $1.31 to $5.70 a thermal unit. 

The yield on 2-year Treasury notes fell to 4.45%, 10-year Treasury notes eased to 3.68% and 30-year Treasury bonds inched lower to 3.73%. 

 

Stock Movers 

Apple Inc declined 2.2% to  $144.94 on the worries that the growing unrest in China and at its main contractor Foxconn may create a shortage of iPhone Pro models. 

iPhone shipments fell 17% to 8.4 million in October from Henan province, China's customs data showed on Thursday. 

Foxconn's mega-complex is based in its capital city Zhengzhou, Henan province where thousands of employees are forced to stay in the factory compounds for more than two months. 

Energy producers declined after WTI crude oil prices fell to a 11-month low on China-demand worries.

Exxon Mobil, Chevron, Marathon Oil, Valero, Occidental Petroleum, Hess and Baker Hughes declined between 1% and 3%. 

Casino operators increased after China granted provisional licenses to keep operations running in gambling center Macau. 

Las Vegas Sands, Wynn Resort, Melco and MGM gained between 0.5% and 6.5%. 

Taboola.com Limited soared 47% to $2.70 after Yahoo agreed to acquire a minority stake of 26% in the advertising company. 

Yahoo also signed a 30-year contract with Taboola to power its native advertising on all sites operated by the publishing company. 

 

European Markets Decline, Lagarde Guides Higher Rates 

European markets traded down led by weak resource sector stocks and growing anger against zero-Covid policy in China sparked a fresh wave of unrest. 

Automakers led the decline amid rising fears that a Chinese government crackdown may impact operations and disrupt economic activities. 

ECB President Christine Lagarde said inflation is high and has not peaked yet and the central bank is not through raising interest rates. 

Lagarde was addressing lawmakers at the European Parliament's Committee on Economic Affairs.  

Consumer price Inflation in the 19-member eurozone rose to 10.6% in October and Lagarde said there are too many uncertainties to determine when the inflationary forces are likely to recede. 

The European Central Bank is expected to lift rates by at least 50 basis points following its next rate setting committee's meeting on December 15. 

This year, the central bank ended net bond purchases and lifted rates three times in a row since July but interest rates at 2.0% are still considerably lagging inflation hovering above 10%. 

The surge in core inflation was initially mainly supply driven factors, but the importance of demand factors increased  over time as the economic activities picked up and the labor market remained tight. 

Policymakers are also struggling with record spread in inflation rates in the currency union with France reporting the lowest rate 0f 7.1% and the rate of 22.5% in Estonia in October. 

The DAX index fell 1.1% to 14,383.36, the CAC-40 index declined 0.7% to 6,665.20 and the FTSE 100 index dropped 0.2% to 7,474.02. 

The benchmark Swiss Market Index closed down 5.87 points to 11,162.16. 

Brent crude oil declined 30 cents to $83.30 a barrel and Dutch TTF natural gas eased 0.9% to 123.28 euros a MWh. 

The euro edged down to $1.035 and the British pound extended recent gains to $1.197. 

The yield in 10-year German Bunds increased to 1.99%, French bonds t0 2.66%, the U.K. Gilts to 3.12% and Italian bonds to 3.91%. 

 

UK Automobile Production Rebounds

UK automakers production increased 7.4% in October reversing a 6.0% decline in September, the Society of Motor Manufacturers and Traders reported Friday. 

Automobile production rose to 69,524 units but 48.4% below the pre-pandemic level of 134,669 units in October 2019. 

Luxury automobile exports dominated the production rebound, with exports increasing 6.3% to 56,469 units and domestic sales rising 12.5% to 13,055. 

For the year-to-date to October, automobile production declined 10.8% to 643,755 from 721,509 a year ago. 

   

Europe Stock Movers 

Brenntag fell 9.7% to