China shakes markets with zero COVID economic data

Those influences are yet to be fully felt in China: exports to the US rose a solid 9.4% in April and its trade surplus with the US grew 14.7% compared to a year earlier. , but will add to the challenges facing China’s economy. and in turn will exacerbate the threat to global growth.

Chinese Premier Li Keqiang warned over the weekend of the “complicated and serious” situation facing employment in China and vowed to step up efforts to stabilize the labor market.

Authorities have heralded more spending on infrastructure and other stimulus measures, while Xi appears to have halted efforts to crack down on the tech sector. Some restraints on leveraged real estate firms appear to have been eased and the broader attack on private equity appears to have eased, indicating the depth of policymakers’ concerns about the direction of the economy.

It’s a threatening new world for investors unaccustomed to an inflationary environment or a central bank that is committed to tightening monetary policy after nearly a decade and a half of ultra-loose and comforting (to investors) policies.

Despite the darkening economic clouds, Xi remains committed to zero COVID, though it is difficult to reconcile strong economic growth and policy that has such a disruptive and negative impact on growth. Earlier this month, as he pledged to meet China’s economic goals, he also made it clear that he would not budge from a hard-line approach to COVID outbreaks.

China’s export performance sparked another sell-off in global stock markets, including in China, where the Shanghai CSI300 index has plunged 21.5 percent since the beginning of this year. In the United States, the S&P 500 fell another 3.2 percent and the Nasdaq index fell 4.3 percent.

The US market has already posted five consecutive weeks of declines, its worst performance in more than a decade, and is now down nearly 17 percent since the start of the year. The Nasdaq, bloated with tech stocks, has lost about 26.5 percent of its market capitalization over the same period.

With Treasury yields rising (and prices having an inverse relationship to sinking yields), investors have had nowhere to hide. The US 10-year bond yield has doubled since the beginning of the year and is now trading above 3%.

The main influence on the US markets is the change in the monetary policies of the Federal Reserve (increase in interest rates and withdrawal of liquidity) in response to an inflation rate of 8.5 percent, but the energy shock, the The war in Ukraine, supply chain problems and a rapidly strengthening US dollar are also contributing to acute risk aversion.

It’s a threatening new world for investors unaccustomed to an inflationary environment or a central bank that is committed to tightening monetary policy after nearly a decade and a half of ultra-loose and comforting (to investors) policies.

It is also a threatening new environment for China’s politicians after decades of extraordinary growth.

A series of political decisions have imploded the real estate sector, destabilized its technology sector and produced COVID-related chaos in logistics, even as the external environment threatens the export engine that drives its long-term growth.

Wall Street has posted five straight weeks of declines.Credit:access point

The trade data also provided insights into China’s response to the war in Ukraine and Western sanctions. China’s monthly imports from Russia reached record levels: 56.6% more in April than a year earlier. Its exports to Russia (not surprisingly, given the state of the Russian economy) fell 25.9 percent.

There is no breakdown of that data, but the obvious assumption is that China has taken advantage of the impact of Western sanctions.

Charging

While Russia’s oil and gas hasn’t been directly sanctioned (yet), the financial sanctions hurt demand for its energy and created an opportunity for China, which relies heavily on imported energy, to buy Russian oil and gas. at a significant discount worldwide. energy prices. Looks like he’s taken it.

That is probably the only consolation the authorities can take from their deteriorating business and economic outlook.

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