It’s been a pretty quiet start to the trading week, with the negative session in Asia continuing into Europe and the US ahead of the open on Wall Street.
Chinese stocks have been hit particularly hard amid unrest over Covid restrictions. The protests really do highlight how increasingly frustrated the public is becoming with the leadership’s zero-Covid policy, even if it has been modestly relaxed recently.
Record cases across multiple cities are putting the policy to the test and the unrest highlights the enormity of the challenge facing President Xi Jinping and his commitment to zero-Covid. The combination of these creates huge uncertainty, both in terms of how the protests are handled and what the whole experience means for the future of the policy and the economy.
It comes at a time when Chinese stocks had been boosted by the prospect of the policy being relaxed, with more easing expected in the spring. So much now is uncertain which may continue to weigh on sentiment until we get a better idea of the direction of travel. Despite how much time has passed and what other countries have achieved, it would appear China is not prepared for a significant loosening of restrictions which could mean that frustration we’re seeing continues to bubble over.
The rest of the week promises to be extremely lively with the US returning from the Thanksgiving holiday and the calendar being packed with big-hitting economic data from around the globe. That includes what is normally considered the biggest of the lot – maybe now second behind inflation – the US jobs report to wrap up the week.
Buckle up, it could be a bumpy ride.
China and the Russian price cap weigh on crude
Events in China aren’t just hitting local equity markets, oil prices are also crumbling under the pressure of record Covid cases and huge economic uncertainty. The country’s commitment to zero-Covid has seriously damaged growth in the world’s second-largest economy and by extension, crude demand. This has helped to soften the impact of the Ukraine war on energy markets to some extent and we could be seeing it weigh on oil prices once more.
Discussions are also continuing on the details of the Russian oil price cap. Most notably, where it should be set. It’s looking increasingly likely to be done at a level that doesn’t particularly hinder Russia’s ability to sell crude – which is contributing to the drop in oil prices – or put its buyers in an uncomfortable position. The outcome will likely factor in how OPEC+ responds this weekend and I expect the rumour mill will therefore be busy as the week progresses, which in turn could trigger a lot of oil price volatility over the course of the week.
A volatile period ahead for gold?
Gold has performed well again over the last week but now appears to be settling ahead of a busy week of economic data. It’s now sitting in the middle of a potential new range between $1,780 resistance – a major level of support in the first half of the year – and $1,730 support – a big resistance level in September and October turned support last week.
With so much data coming from the US this week including inflation, GDP, and the jobs report, we could see one of these give way in the coming days, setting us up nicely for the Fed meeting in two weeks. The latest inflation data will also be released a little over 24 hours before that interest rate decision so it could be a volatile couple of weeks for the yellow metal.
Cryptos on the ropes
Bitcoin remains under pressure despite recovering slightly last week. Cryptos are still suffering the fallout from the FTX collapse and the still unknown full extent of the contagion. Not to mention the fact that traders will now be hyper-alert to similar vulnerabilities elsewhere in the crypto world. The fact that risk appetite is weak today also won’t be helping and bitcoin is off around 2% as a result and not far from $16,000. While it’s seemingly trying to form a base around $15,500-17,000, it may be easier said than done in this environment.
