China protests spread panic in global markets
Widespread protests in China over strict anti-Covid restrictions have triggered a sell-off in global markets and pushed investors towards the safe-haven dollar.
The widening number of coronavirus infections in China could increase supply chain disruptions as China’s woes affect global markets.
Rare popular protests in China have also raised concerns about the outlook for oil demand in the world’s top oil importer. This is at a time when the global oil market is awaiting the next meeting of the “OPEC+” alliance, the price ceiling proposed by the Group of Seven major industrialized countries for Russian crude oil, and the start of the implementation of the European Union ban on the import of Russian seaborne crude oil.
Covid protests erupted across China and spread to several cities following a deadly fire in the far western city of Urumqi, where hundreds of protesters clashed with police in Shanghai last Sunday evening.
In detail, European markets fell broadly, tracking the performance of Asian equities. The FTSE 100 fell 0.7 percent, the CAC 40 fell 0.6 percent and the DAX fell 0.5 percent.
Credit Suisse fell 4.2 percent to a record low close, while the cost of insuring its debt against default rose.
Hong Kong’s Hang Seng fell 4.2 percent, while China’s CSI 300 fell as much as 2.5 percent. The Chinese yuan fell against the U.S. dollar.
Japan’s Nikkei fell for a second straight session on Monday as protests in China over strict coronavirus restrictions hurt investor sentiment, while tech stocks fell in line with their Wall Street peers.
It was natural for Japanese equities, especially the technology sector, to be affected, as it deals heavily with Chinese markets and supply chains.
Technology stocks are under pressure after Apple’s stock fell sharply on Friday following a report that Covid restrictions would cut production at China’s main iPhone plant.
Developments in China halted the dollar’s decline, which had fallen over the past few weeks in hopes that the Federal Reserve would soon slow the pace of rate hikes.
The dollar index against a basket of currencies fell 0.08 percent to 106.25, but failed to fall to a three-month low of 105.30.
On Friday, a day before the protests began, China’s central bank cut the amount of liquidity lenders must hold as reserves for the second time this year. The reserve requirement ratio for most banks was reduced by 0.25 percentage points.
The move was aimed at supporting an economy crippled by strict Covid restrictions and a faltering property market. But analysts do not believe that the move will have much impact, and in turn see ending pandemic measures as soon as possible as key to a recovery in credit demand and economic growth.
One analyst argues that mass protests would tip the balance in favor of a weaker economy and are likely to be accompanied by a massive surge in Covid cases, leaving policymakers with a major dilemma.
Goldman Sachs, in a research report published late Sunday, predicted that China could scrap its coronavirus anti-spread policy earlier than previously expected, with “little chance of a forced and uncontrolled exit.”