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The Overnight Report: Where’s Tank Man?

Published 29/11/2022, 11:06 am
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Uncertainty

The problem for Xi Jinping is not that zero-covid doesn’t work. It does work. China has recorded nominally far fewer cases and deaths from covid than the US, and in percentage of population terms, substantially fewer.

The problem is the country is under-vaccinated, and for those who are, it is pretty clear Sinovac, which was rushed to market in 2020 long before Pfizer/Moderna hit the shelves, doesn’t work. Xi has nevertheless refused to buy Western vaccines – that would be a severe loss of face.

China has been isolated from the latter variants of covid which have swept the globe, thanks to its border policy, so were it to open up now, the results could be devastating. Xi needs to get his country vaccinated, quickly, with something that works.

His biggest problem right now is the World Cup. Chinese fans are watching and wondering why no one is wearing a mask. Or for that matter, why Xi was not wearing a mask at the G20.

Late yesterday Beijing announced an “easing” of restrictions, in response to the protests. With no mention of the fire that killed ten, local officials have been told not to block access to apartment buildings. In Guangzhou, the current epicentre, mass testing requirements have been eased. But zero-covid? That’s not going anywhere.

The response to the situation was not as negative in the Australian market yesterday as it was on Wall Street overnight. Energy (-1.7%) and materials (-0.9%) led the ASX200 lower, with a total of seven sectors closing in the red.

Next worse was consumer discretionary (-0.7%), which on Friday basked in a glow of Black, while the banks (-0.4%) did their bit.

Discretionary was also rocked by data showing retail sales fell in October to mark the first monthly drop all year. Sales fell -0.2% after rising 0.6% in September and 0.9% in August. This might please a humbled Philip Lowe, while he sits in the Naughty Chair, and lead to a possible rate hike pause in December.

Or it might just be shoppers waited until last week to snap up bargains.

City Chic Collective Ltd (ASX:CCX) rapid weight loss program continued yesterday, as brokers responded to Friday’s news and subsequent share price trashing. Two FNArena database brokers conceded and downgraded to Hold, while two others are sticking with Buy, lest they look foolish. The stock fell another -25.6%.

The index banged around all day in a 40-point range, but closed much as it had opened.

Defensive sectors of communication services, healthcare, industrials and real estate posted modest gains.

Coal miners led the top five winners’ table, and lithium miners dominated the losers. A typical day, in other words.

There were steep falls in Chinese and Hong Kong markets yesterday and Wall Street has taken a tumble overnight. We don’t seem that perturbed nonetheless – the futures are up two points this morning.

More Stewed Apple

Apple Inc (NASDAQ:AAPL) has become the poster child for the Chinese unrest. Having fallen -2% on Friday specifically due to the Foxconn riots, the world’s biggest company fell -2.6% last night to again drag down all three US indices. But the implications for global growth reverberated across the wider market.

And the Fedheads were also at it again last night, ahead of this week’s inflation and jobs data.

St Louis Fed President James Bullard said he favours more aggressive interest rate hikes to contain inflation, and that the central bank will likely need to keep interest rates above 5% into 2024. New York Fed President John Williams said that US unemployment could climb to as high as 5% next year, versus October’s rate of 3.7%, in response to Fed hikes.

It wasn’t all bad news. Retailers applauded a general 2.9% year on year increase in sales across the Black Friday week, and 2.3% for online, concluding last night with Cyber Monday.

As has been pointed out, that’s actually below the general 2022 sales growth trend, and not being adjusted for inflation, it does not actually shape up that well.

Still, Amazon.com Inc (NASDAQ:AMZN) rose 0.6%.

The S&P500 discretionary sector closed down -0.6%, and all sectors closed in the red. Energy was the worst performer (-2.7%), despite oil prices recovering over the session from early steep losses.

Interestingly, Chinese stocks listed in the US were all higher last night, despite Chinese markets tumbling yesterday. Bold investors likely expect more policy responses from Beijing to prop up the economy.

Wall Street now nervously awaits a raft of significant economic data releases this week.

Commodities

Commodity prices are all looking a bit rabbit-in-the-headlights at present, but prices had already been coming down steadily due to growing Chinese covid cases and rolling lockdowns.

China’s woes are leading to renewed strength in the US dollar, which is up 0.7%.

The Aussie is down -1.1% at US$0.6649.

Today

The SPI Overnight closed up 2 points.

The US will see house prices and consumer confidence tonight.

Collins Foods Ltd (ASX:CKF) and Fisher & Paykel Healthcare Ltd (ASX:FPH) report earnings today.

Graincorp Ltd (ASX:GNC) goes ex.

"The Overnight Report: Where’s Tank Man?" was originally published on FNArena.com and was republished with permission.

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