From Marc to Market:
Overview: Fears that the Chinese lockdowns to fight Covid, which have extended for four weeks in Shanghai, are not working, and may be extended to Beijing has whacked equity markets, arrested the increase in bond yields, and lifted the dollar. Commodity prices are broadly lower amid concerns over demand. China's CSI 300 fell 5% today and Hong Kong's Hang Seng was off more than 3.5%. Most of the major markets in Asia Pacific were off more than 1%. Europe's Stoxx 600 is off around 1.9% after falling 1.4% last week. US futures are about 0.7%-0.8% lower. The S&P 500 fell last week for the third consecutive week, the longest losing streak in 18 months. The US 10-year Treasury yield is almost seven basis points lower at 2.83%. European benchmark yields are 4-6 bp lower. The BOJ bought JPY727 bln of 10-year bonds at the pre-committed fixed rate operation, more than in the previous three operations last week combined. The yield slipped half of a basis point. The dollar rides high. It has appreciated against all the major currencies but the yen. The Australian dollar, Scandis, and sterling have been hit the hardest and are around 0.9-1.2% lower in the European morning. Emerging market currencies are heavy as well. Hungary, Mexico, and China have seen their currencies decline by around 1% to lead the complex.
Gold fell to new lows for the month around $1912 before stabilizing. June WTI is 4.3% lower near $97.70 after falling around 4% last week. US natgas is extending last week's 10.5% sell-off, while the European benchmark is up 2.5% after a flat showing last week. Iron prices are off 8.7%, after tumbling closer to 12% at one juncture today. It fell a little less than 5% last week. Copper is off around 2.1% after declining about 3% last week. July wheat is up about 0.5% as it tries to snap a four-day slide.
Asia Pacific
China's Covid has emerged as a powerful economic force in its own right. It is threatening demand for commodities and threatening to extend supply chain disruptions. Shanghai reported a record number of fatalities, and the infection is spreading to Beijing. The Chaoyang district will submit to three days of testing this week for people who live and/or work in the area. Reports suggest 14 smaller communities have been sealed and another 14 have imposed limitations on movement. China's demand for gasoline, diesel, and jet fuel has reportedly fell by 20% year-over-year, which may translate to 1.2 mln barrels of oil a day.
The US has threatened unspecified action if Beijing's new security pact with the Solomon Islands result in a permanent Chinese military presence. While the US has defended Ukraine's right to make its own foreign policy decisions, it seems to want to limit Solomon Island's choices. Prime Minister Sogavare has articulated his own 3 No's Policy. He says that the secret treaty has no provision for a Chinese military base, no long-term presences, and no ability to project power from the islands. The Solomon Islands are about 2k kilometers of Australia's coast....
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