Market News – China lockdown hits world trade

Created: 28th March 2022
Dear Reader, First, a quick update on market hours With clocks going forward in Europe an hour yesterday, the time difference between Europe and East Coast North America will again be back to its usual 5 hours. The trading day is back to ending at its usual time of 10pm. Understandably news continues to be dominated by the Russian war in Ukraine. But some media outlets have also focussed on the lockdown in Shanghai overnight, following a significant rise in Covid infections.   Shanghai, with a population of 25 million, is one of China’s key financial and manufacturing centres and is being locked down in two phases as China continues with its zero covid policy. The impact on world trade and a likely extension of the supply bottlenecks plaguing international manufacturing has been felt overnight with crude falling and both Shanghai and Hang Seng indices falling.   Review of last week’s key action FTSE +78 +1.06% DOW +135 +0.4% S&P +111 +2.5% NASDQ +398 +2.9% DAX -107 -0.74% NIKKEI +1,322   Global stock markets continue to recover from the initial shock of the Russian War in Ukraine, although gains were most pronounced in US markets, with key indices posting further gains – and following on strong gains made in the previous week. All this comes despite the war in Ukraine and despite a significant shift higher in international bond yields.   Following comments on Friday by the head of the New York Fed John Williams that the Federal Reserve would raise rates by 0.5% at any meeting if needed, 10-year yields jumped by 0.14% to hit 2.5%, which is the highest level since May 2019.In the past month yields have jumped from 1.84% to 2.53% - a near 40% jump in yields – which reflects the concern that the markets have for inflation and the measures that may be needed to contain it.    CME Fed Watch tool has markets expecting a 0.5% rise in May. Whilst Citibank expects the federal Reserve to raise rates by 0.5% at each of the next 3 FOMC meetings. European markets are less bullish due to the proximity of the Ukraine war and the effects on regional economies, as the West attempts to wean itself off Russian energy. Germany remains in the firing line and is struggling to reconcile its energy needs whilst supporting the West’s efforts to choke off Russia access to Western capital.   At best Germany along with central Europe is targeting a cut of 2/3rds in Russian energy imports by year end.Whilst the US has offered a significant increase in LNG exports to the bloc, this amounts to just 30% of the Russian supplies that Europe needs to replace.   EURUSD -0.68 -0.62% GBPUSD unch USDJPY +2.94 +2.46%   The US Dollar remains strong as analysts ratchet up their expectations for rates rises in the US Whilst the BoE’s intentions and to a lesser extent the ECBs intentions have temporarily nullified further US Dollar strength against Sterling and the Euro, the marked policy difference in Japan has resulted in some extraordinary moves. The Japanese Yen continues to fall precipitously against the US Dollar and versus other major currencies as the BoJ balks at tightening monetary policy. Since early March, the Japanese Yen has fallen by nearly 9 yen, or 7% which is an extraordinary move in such a short space of time for such a key global currency.   Gold +37 +1.92% UK OIL +10.97 +10.12% US OIL +7.28 +6.9% Bitcoin +2,555 +6.1%   Oil jumped last week as analysts contemplated the effects of further sanctions on Russia. Traders continue to avoid Russian crude where possible, putting further pressure on available crude supplies. In addition, to add to the supply pressures, Russia announced the closure of a key pipeline, citing storm damage for the closure. Gold reacted very positively to the Ukraine war as you would expect but the US dollar strength has eroded half those gains as the US Dollar looks underpinned by expectations of further significant rate rise this year.   Data / events for the week ahead   First Friday of new month will give us news on the US employment situation. Other than that, it is quiet on the interest rate front with no major central bank meeting this week.   Monday UK BoE Governor Bailey speaking at online event regarding macroeconomics and financial stability. GBP sensitive.   Tuesday US CB Consumer confidence. Slipping as rate expectations erode confidence. And the rates have not gone up by much.   Wednesday US ADP employment change. A volatile reading on the employment situation, which clearly remains quite tight. US Final GDP reading from Q4. Historical. US crude oil inventories   Thursday OPEC OPEC – JMNMC meetings. No movement on production. Helpful cartel… as ever US Core PCE index. Closley followed by the FOMC… US Chicago PMI – still sliding?   Friday  US Non-Farm employment change – NFP. Apart from headline numbers, Employment rate and average hourly earnings key OK, so that rounds up what’s ahead this week. I hope you have a good week in the markets. Check out the live trading webinar dates on this page – signup for your free session.   Regards,   Jerry Miller Managing Director Trendsignal