Unlike European countries or the US, China still maintains a strict policy against the Covid-19 outbreak. The authorities do not hesitate to use violence to blunt any opposition to the policy, as has happened, for example, at the Foxconn factory, which is responsible for, among other things, producing iPhones for Apple.
The number of new coronavirus infections in China has risen by 40347, the country's health authorities reported Monday. The latest number represents another daily record for China, with 3822 symptomatic and 36525 asymptomatic cases documented in the past 24 hours. No deaths caused by the virus have been reported in the same period, BBN reported.
How are stock markets and the price of oil reacting?
The current power politics and brutality seem to be leading to protests, which could have an impact on the markets initially in the short term and then in the long term. Protests against lockdowns in China intensified over the weekend, spreading to cities such as Shanghai, Nanjing and Urumqi. Western media confirmed that demonstrations were taking place on the streets and at universities, and that there was an increased police presence at protest sites. There were also reports of clashes between people and police officers. Asian stock markets appear to have seen declines on Monday as a consequence of the protests, and President Xi Jinping was reportedly urged by some demonstrators to step down. The Shanghai Stock Exchange index fell nearly 1.5 percent, with U.S. index futures posting morning declines ranging from -0.4 percent (Dow Jones Industrial Average) to -0.8 percent, (Nasdaq 100).
Crude oil also came under pressure from the protests. WTI crude oil futures fell about 3 percent on Monday to around $74 per barrel, slipping to the lowest levels since last December. The oil price consequently began a fourth week of declines, as uncertainty over politics in China, the country that is the largest importer of crude oil, may affect the outlook for crude demand.
Source: Conotoxia MT5, XTIUSD, Daily
Possible long-term implications
China appears to be a country that would sooner stifle protests by brute force than allow them to affect a change in policy. Nevertheless, if such events were to occur, it would likely be one of the most positive returns for financial markets this year. We saw a foretaste of the market euphoria associated with rumors that China is to abandon its zero Covid policy on November 4. Then, after the market rumor, investors went on a buying frenzy. The lifting of lockdowns could allow China's economy to grow stronger and, as a result, lead to increased demand for raw materials and other goods and products. With the current recessionary-stagflationary sentiment, this could be one of the more positive factors. What are the chances of such a scenario materializing? In the short term, the markets seem to indicate that they are small, but it is worth keeping in mind.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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