What the protests in China could mean for the economy | Bot To News


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Protests against China’s lengthy and restrictive covid regulations spread across the country over the weekend. The demonstrations against Chinese President Xi Jinping and his expensive Covid-free policy are an extremely rare example of widespread civil disobedience.

While the protests pose an unprecedented challenge to Xi, they also have economic and market implications. Oil fell to a 2022 low on Monday, while shares of companies that rely on China for production felt the heat. Apple fell 2.6% after reports that unrest at one of its factories could result in 6 million fewer iPhone Pros this year.

What’s happening: China’s controversial no-Covid policy has affected daily life and put a heavy burden on the economy. When outbreaks get bad enough, entire cities are shut down: Shanghai was shut down for about two months this spring, and Chengdu, a city of 21 million people, was shut down in the fall.

Earlier this month, Beijing eased some Covid-related restrictions, raising hopes that the economy could soon fully reopen, but local governments tightened controls again as the number of cases surged. The policy does not appear to be working, with cases reaching record highs, but China’s low vaccination rates, relatively ineffective vaccines and an aging population mean the alternative could be very deadly.

The rising political tensions were also difficult to explain. At first the protests appeared to be focused on Covid restrictions, but now appear to contain broader demands for political reform: Blank sheets of paper held up by demonstrators in Shanghai, the country’s financial hub, have already become iconic symbols of defiance against the government , which limits freedom of speech.

Economic impact: People in closed spaces say they are having a hard time finding food and other necessities. Economic growth has fallen and unemployment is rising due to quarantines.

The policy has also resulted in major global production constraints that maintain inflation. Global supply chain pressures rose modestly in October after five straight months of easing, mainly due to longer delivery deadlines in Asia, according to the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index.

However, commodities fell on China concerns on Monday. Oil prices have fallen sharply, with investors worried that rising Covid cases and protests in China could dampen demand from one of the world’s biggest oil consumers.

What is next: Chinese government officials are in a strange place. They do not want to end their covid policy, but they also want to ensure that political unrest does not increase. Companies doing business in China are watching closely for any hints of what the future may hold. In the long term, they are also thinking about moving production out of the country – Apple has already moved part of its production to India.

Goldman Sachs predicted in a research report published late Sunday that the protests could see China abandon its Covid-free policy sooner than expected, with “some possibility of a forced and disorderly exit”.

But the next few days could be crucial. If the protests flare up again, the Chinese government will likely be forced to react in some way. On Tuesday, she announced an “action plan” to increase vaccination rates among the elderly. But “with the rapid spread of new COVID cases, it is difficult to envision a broad lifting of restrictions that would significantly improve the country’s economic outlook for next year,” said Christopher Smart, chief global strategist at Baring. “In any case, continued pandemic policy uncertainty will put additional pressures on global supply chains and keep prices higher than they would otherwise be.”

US investors took a short break from the trading floor last week as they celebrated Thanksgiving. Now the vacation is definitely over. This week is full of important economic data releases, many of which will help guide the Fed’s next rate hike decision in December.

Here’s what to look out for.

Tuesday brings housing wealth: The September house price index (HPI), a measure of changes in single-family house prices, is due to be released at 9 a.m. CET. Also scheduled to be released in September is the S&P/Case-Shiller Home Price Index, which measures the change in the sales price of single-family homes in 20 metropolitan areas across the US.

Also on Tuesday: the Conference Board’s November measure of consumer confidence in economic activity. It is a leading indicator as it can predict consumer spending.

Wednesday is the Fed’s big day: Federal Reserve Chairman Jerome Powell will discuss the economy and labor market at an event hosted by the Brookings Institution at 1:30 PM ET. A question and answer session with the audience is also expected. Traders will be watching his speech closely for clues about future monetary policy.

Fed Governor Lisa Cook will also discuss the economic outlook and monetary policy at an event hosted by the Detroit Economic Club, and Fed Governor Michelle Bowman will discuss the future of small banks, followed by a question-and-answer session.

More data: Wednesday also brings some employment data. First up is the ADP National Employment Report, a measure of the monthly change in private employment based on wage data from about 400,000 US business clients. Next up is October’s JOLTS, the U.S. Bureau of Labor Statistics’ job vacancy survey.

Also expected are revised third-quarter GDP and PCE inflation numbers, as well as October’s ongoing home sales, which measure the change in the number of homes under contract for sale.

Thursday is marked by inflation: The October price index for personal consumption expenditures is expected at 8:30 a.m. CET. The index measures changes in the prices of goods and services purchased for consumption. Core PCE, which excludes gas and food, is the Fed’s preferred measure of inflation.

Friday is a working day: Here are the government’s unemployment figures for November. Given that full employment is one of the mandates of the Federal Reserve, it is being watched very closely.

Expect bigger holiday promotions this season, Bank of America analysts say. Why? Retailers are dealing with excess inventory they’re trying to get rid of, but it’s also about time.

Last year, Americans did their holiday shopping early in the year because they were worried about shortages and because the Omicron Covid wave kept people from entering stores before the holidays. This year, things are expected to “mimicking the normal pre-pandemic holidays,” the analysts wrote, except for one thing: There’s an extra day between Thanksgiving and Christmas this year because Christmas Eve falls on a Saturday.

“We think this is likely to lead to a crazy game of chicken, with shoppers waiting until the last minute for great deals and retailers balancing selling at the highest price with enough product,” said Lorraine Hutchinson, research analyst at Bank of America.



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