What’s happening: China continues to impose “sudden” lockdowns in an attempt to eliminate the transmission of Covid-19 within its borders. Politics hangs over the outlook for the global economy and financial markets, presenting more and more unknowns as investors scramble to assess the fallout from the war in Ukraine and rising inflation.
Starting Monday, about 11 million residents of eastern Shanghai will be banned from going outside for four days as mass testing begins. The phased lockdown will then move to the other half of the city, which is home to about 14 million people, starting Friday.
Market reaction: This announcement sent global oil prices plummeting as traders bet that restrictions would dampen demand from the mainstream consumer. China imports about 11 million barrels of oil per day.
However, the shares hold their positions. The Shanghai Composite index finished Monday up almost 0.1%. The Shanghai Stock Exchange remained open and said it would offer online services for firms that want to go through the stock listing process.
How important is Shanghai? Quarantine in Shanghai is of great importance, not only because of the size of the city, but also because of its deep financial and economic ties.
According to Larry Hu of Macquarie Capital, Shanghai accounts for about 4% of China’s economic output. But because it is “a major center of the Chinese economy … the indirect impact can also be significant,” he told clients.
The lockdown and uncertainty about what Beijing will do next as it continues its furious fight against the virus poses a threat to China’s economic growth target of around 5.5%, already the lowest in three decades.
“China should be able to contain the virus in the next few weeks as the lockdown is effective,” Hu said. “But Covid does pose a significant upside risk for the remainder of this year as lockdowns are very costly.”
China’s consumer spending and real estate sector, which was already under severe pressure, is likely to go down the drain.
On the radar: Outside of China, the big question is whether manufacturing and shipping will be affected, putting pressure on global supply chains and pushing prices further up.
“The impact on manufacturing activity is likely to be manageable, especially if such lockdowns are short and sporadic,” Bank of America economists said in a recent research note.
Bond market flashing warning sign
Turbulence in the bond market is mounting as investors bet that the Federal Reserve will have to act more aggressively in its upcoming meetings to deal with rising inflation.
Wall Street is betting that the Fed may have to raise interest rates by 0.5 percentage points several times this year, more than usual. This risks turning the economy back on track.
“A soft landing is wishful thinking,” Bleakley Advisory Group Chief Investment Officer Peter Boukvar said Monday.
There is much debate about how much investors should understand inversion, given how years of unprecedented support for the economy by central banks may have skewed traditional recession indicators.
And 2-year Treasuries have yet to outperform 10-year bonds, another closely watched pair.
But the volatility is a sign that investors remain on edge even as some confidence returns.
Apple Wins World’s First Streaming Oscar
Mention the Oscars and it’s likely to be Will Smith, who slapped comedian Chris Rock in the face on Sunday just before he won the Best Actor award.
But it wasn’t the only drama that put on a brilliant show. When Apple TV+’s CODA won Best Picture, it was a first for the streaming service.
The moment was the culmination of years of lobbying by streamers for the Hollywood establishment to take them seriously in the fight for subscribers.
Step back: Apple TV+ is not the company’s cash cow. But subscription services are becoming increasingly important for the tech giant.
Apple said in its latest earnings report that it currently has 785 million paying subscribers to offerings such as Apple TV+, Fitness+ and Apple Music, up 165 million from the past 12 months.
“In terms of how we’re doing with TV+, we’ve got 200 wins and 890 nominations,” CEO Tim Cook said in January. “We’re doing exactly what we wanted to do, giving storytellers a place to tell original stories and feel really good about being competitive.”
Cook congratulated the CODA team on their “historic victories” at Sunday’s ceremony.
US consumer confidence and job data for February are due Tuesday.