From Marc to Market:
Overview: While the World Health Organization debates about downgrading Covid from a pandemic, the rise China and Hong Kong cases is striking. A lockdown in Shenzhen and restrictions in Shanghai, coupled with a record fine by PBOC officials on Tencent drove local stocks sharply lower. China's CSI 300 fell 3% and a measure of Chinese stocks that trade in HK plunged more than 7%. The Hang Seng itself dropped 5%. Covid in China and Hong Kong adds to the risk of more supply chain disruptions. Europe's Stoxx 600 is up about 1.6%, led by financials and industrials. US futures are 0.5%-0.7% better. Bond markets are sliding. Yields are 8-10 bp higher in European. The US 10-year Treasury yield is near 2.10%. It rose slightly more than 25 bp last week and is up 10 basis points today. The US 5-year yield is pushing above 2% today for the first time since May 2019. It is the sixth consecutive advance. The dollar is sitting at the fulcrum today. The Scandis and Euro are advancing, while the dollar-bloc and yen are softer. The greenback pushed above JPY117 at the end of last week and has approached JPY118 today. Among the emerging market complex, the beleaguered central European currencies are snapping back today. The Hungarian forint, Czech koruna, and Polish zloty are up more than 1% today. The JP Morgan Emerging Market Index has a three-week, roughly 6.5% slide in tow. It is up about 1.1% today.
Gold is heavy near $1960 after peaking last week around $2070. Support is seen in the $1950-$1958 band. April WTI is also slipping lower after meeting resistance near $110. Last week's low was slightly above $103. US natgas prices are around 2.3% lower after falling 5.8% last week. Europe's benchmark is off 15% after plummeting more than 34% last week. Iron ore is off 7%, falling for its fifth consecutive session. Copper is trading lower as well. It has fallen in five of the past six sessions. May wheat is softer. It fell 8.5% last week.
Asia Pacific
US National Security Adviser Sullivan is meeting with his Chinese counterpart Yang today. The last meeting was in October. The ostensible purpose is to exchange views on global and regional issues. The media has played up the diplomatic language of the statement that followed last month's meeting between Putin and Xi claiming a "friendship with no limits." The media wants to take it at face value, yet it knows it to be misconstrued. Consider, for example, that media reports also reveal that Russia sells weapons to India to help it fight China. "No limits?" Sullivan was also clear that thus far there is no evidence that Beijing is trying to circumvent the sanctions. That said, last week the US warned Chinese chip makers against supplying Russia with products that were subject to export controls. Affirmation through negation. Other US officials say that Moscow has reached out to Beijing to secure military equipment, even though part of the logistical problem Russian forces are experiencing appears to be coming from shoddy parts (e.g., tires) made in China. Reports suggest that since doubling the yuan-rouble band to 10%, there has not been an increase in turnover.
There seems to be a debate over how much China knew of Putin's intentions. Some US officials seem to think China may have been aware that Putin was planning something, but may not have known the full extent. Beijing cannot be happy with what is happening, even the European theater was need new resources that could have otherwise been used to check China in the Asia-Pacific region. The challenge posed by higher commodities is not inflation so much in China, where the CPI is less than 1% and PPI has fallen for four consecutive months. The challenge is growth. The 5.5% target will be more difficult to meet. From Beijing's vantage point, the unprecedented swift and broad sanctions on Russia strengthens US-European ties. Xi has been reaching out to European leaders since Russia invaded Ukraine trying to strengthen ties. At the same time, Japan, Singapore, Taiwan, and South Korea (which has a new president whose rhetoric is more confrontational to Beijing) appear on a heightened sensitivity to China's actions in the region. China sees a web of US relationships that are tantamount to a Pacific NATO: 5-4-3-2...Five Eyes (Australia, New Zealand, Canada, UK, and the US), the Quad (Australia, India, Japan, US), AUKUS (Australia, UK, US), several bilateral security pacts including Japan, South Korea, Philippines.....
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