From Marc to Market:
Overview: Chinese officials using the carrot and the stick have succeeded in dampening the protests and easing some anxiety and rekindled the animal spirits. Hong Kong’s Hang Seng rallied 5.25% and its index of mainland shares surged 6.20%. South Korea and Taiwan indices gained more than 1%. Among the large bourses, only Japan failed to advance. Softer than expected Spanish and German inflation may also be helping the Stoxx 600 recoup around half of yesterday’s 0.65% decline. US equity futures are firmer by around 0.5%. Benchmark 10-year yields are softer. The 10-year US Treasury yield is off three basis points to 3.65%. Most European bond yields are 10-12 bp lower. Gilts are underperforming (-4 bp) while the BOE is seeking to sell some long-dated Gilts it bought to stabilize the market (Sept-Oct). The dollar is giving back a chunk of yesterday’s gains. The Antipodeans are leading the way with gains of around 1.3%. Emerging market currencies are also advancing. The Mexican peso, South African rand, and South Korean won are up more than 1%.
Gold has recouped yesterday’s loss in full and has pushed back above $1755 in the European morning. January WTI is extending its recovery from the $73.60 low seen yesterday and reached $79.65 today before steadying. US natgas is surging 9% today after dropping about 8.5% over the past two sessions. Europe’s benchmark is 6.7% higher. It fell 1.8% yesterday. Iron ore rebounded 2.65% losing 1% yesterday. Copper is 1.2% firmer today after slipping 0.4% yesterday. March wheat has steadied. It lost 2% yesterday on top of 2% at the end of last week.
Asia Pacific
With the apparent help of Chinese censors and police, the protests in several cities eased and Chinese officials made several announcements that lifted sentiment. For sure, the Golden Dragon China Index of companies that trade on US exchanges rallied 3% yesterday, the most in a couple of weeks, after the CSI fell 1.1% on Monday. Local equities had begun to recover well before the official announcement that seemed more like signaling than substantive changes, but the market has been primed since the end of the 20th Party Congress for a shift. Today's announcement focused on urging older parts of the population to get vaccinated (personal responsibility) and played down the virulence of the virus now and the mutations. It noted the low death rate that official figures show in China. Central government officials also reiterated that local authorities should not be over-zealous with its Covid restrictions, respond to reasonable public demands, and minimize the impact.
Many seem to think it that China's Covid policy is simply the result of President Xi's preferences even though Chinese and international experts have warned that the country is ill-prepared for the surge in infections and fatalities that would likely result from "opening up." Hong Kong, which has opened up, has recently had to cancel non-emergency medical procedures because the hospitals are overwhelmed with Covid cases. Others look to Taiwan, which moved away from its zero-Covid policy in May, and it has a similar elderly share of its population (~15%). It has recorded 11k deaths related to the virus since then. Extrapolating from China could mean at least 700k fatalities in six months. And that might be a conservative estimate given the less effective vaccine and weaker healthcare system. China reports its November PMI tomorrow....
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