Investors Navigate China Covid Protests – Revolution, The Fed & Retail Sales(Wall Street Cheat Sheet)

S&P 500 11-28

Last week, all the main stock indices saw gains. After the minutes from the Federal Open Market Committee meeting earlier this month indicated that future lower rate hikes, Wall Street was upbeat going into the holiday weekend.

There is a lot going on this week. Let’s start with China.

China Covid Protest – Revolution?

The big news this week is the massive protests against China’s lockdowns. This type of protest has not been seen since Tiananmen Square. The protests gained traction after a fire broke out in an apartment in Urumqi in which at least 10 people were killed because they were locked inside by the government.

Hundred people in Shanghai early on Sunday voiced calls for Xi Jinping to resign as president in response to anger over Covid lockdowns. Resign, CCP!

The slogans “democracy and the rule of law, freedom of expression” were heard throughout Sunday’s protests at Beijing’s renowned Tsinghua University.

Furthermore, on Sunday night, demonstrators in Beijing chanted chants calling for “freedom of art” and “freedom to write.”

Protesters all throughout China have been seen carrying blank pieces of paper to represent censorship.

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‘I don’t recall public protests directly calling for press freedom in the past two decades,’ political scientist Maria Repnikova said in a tweet.

State-run media outlets were silent during the protests, instead publishing editorials asking citizens to comply with COVID regulations. According to several commentators, there must be a successful immunization campaign before China can reopen.

There are a couple of things to note here:

  • Protest May Losen Covid Restrictions: The protests are direct results of the Zero-Covid Policy. This is a hampered recovery for most of China. Getting rid of the restrictions will decrease the oil supply and increase prices.
  • Taiwan Invasion Halted: The protests have put the plan to invade Taiwan on hold due to their own uncertainty.
  • Political Uncertainty: XI was just “elected” President, and the protestors are calling for him and the CCP to step down. This type of protest is unheard of in China.

Fed Pivot?

Although unclear, it seems to be on the upswing. The economy continues to show one tale, interest rates show another, and stock prices show a third. How do you know which is which? The PMI readings for Europe in November were more robust than what economists had predicted.

The U.S. economy is still struggling, but durable goods orders are up more than forecast, and consumer confidence is rising. The market well received the minutes from the most recent Federal Reserve meeting.

There were indications that the central bank was starting to soften its stance on the rate of rate increases, which investors welcomed. On Wednesday, Jerome Powell will give a major speech confirming or refuting this.

The Fed’s vigorous monetary policy tightening to combat inflation has been a drag on stock prices. With four consecutive rate increases of 75 basis points, many predict a smaller increase of 50 basis points in the coming month.

That being said, the 240,000 people who filed for unemployment the week of November 19 was significantly higher than forecast. This may be a warning that the labor market is faltering, which in turn may cause the Federal Reserve to adopt a more dovish stance in 2023.

Mixed Economic Indicators

Regarding economic indicators, October’s durable goods orders were better than anticipated. Despite rising mortgage rates, the Commerce Department announced that sales of single-family homes increased on a monthly basis in October.

Now, foreigners have yet to learn what the Chinese government plans to do with its COVID-19 restrictions due to the protests.

The lockdowns in the world’s second-largest economy could reduce demand. Thus this affects the price of oil. Wednesday saw a decrease in the price per barrel for Brent crude, the international standard, and West Texas Intermediate, a benchmark in the United States.

KEY EVENTS & CALENDAR

  • Wednesday, November 23: Core Durable Goods Orders (MoM) (October)
  • Wednesday, November 23: New Home Sales (October)

Next week will be busier than usual, with many statistics because the United States is celebrating a holiday. After Black Friday and Cyber Monday, investors will look for consumer spending indicators in the United States.

On Tuesday, the Conference Board will release its consumer confidence index in the United States. We’ll get the first look at European inflation for November, a revised estimate of U.S. GDP for Q3, the JOLTS survey of job openings, and a powerful speech from Federal Reserve Chair Jerome Powell on the same day.

The PCE inflation rate and the ISM manufacturing index will be released on Thursday in the United States. Additionally, there will be an OPEC gathering. On the agenda for this coming Friday is a talk by Christine Lagarde and the release of the November jobs report from the United States.

BONDS

The bond market’s recent optimism on a pause in U.S. Federal Reserve rate hikes is nothing new. In the past week, the yield on the 10-year Treasury note has dropped from 3.78% to 3.71%.

The anticipated significant downturn in economic activity has been sluggish to materialize, although shorter maturities continue to be rolled back. Despite a significant increase on Friday, the European Bund’s 10-year yield is still below 2%.

COMMODITIES

OIL

Oil prices are under pressure and are giving up ground again this week. It has been reported that the European Union is considering setting a ceiling on the price of Russian oil at $67 per barrel.

The price of Russian oil is significantly lower than that of Brent (Urals is currently trading at around USD 67 per barrel). As a result, we may assume that this price cap will only impact the Russian economy’s output.

The recent drop in oil prices can be explained by the fact that the former is likely to remain relatively high in the following months.

GOLD & PRECIOUS METALS

Overall, industrial metals were weaker as fears of stricter regulations in China dampened investor confidence. Covid is pressuring Chinese officials to enclose several cities and regions once again. That is to say; the market must wait for the possibility of a complete rebound in metals demand before acting on it. On the LME, a ton of copper hovers just above $8,000. Gold is breaking the bear trend, but has a long way to go to reverse it completely.

Additionally, the World Platinum Investment Council expects a deficit market for platinum in 2019, the first time this has happened since 2020. The Institute cites robust demand from the automobile industry, which is forecast to see its needs rise by 3.3% annually while global supply grows by only 2%. Platinum is trading at roughly $985.

CRYPTOCURRENCY

Following the FTX affair, Bitcoin has been in a state of shock. This week, the digital currency has recovered +1.73%, bringing its price back to roughly $16,500 as of this writing.

It will likely take the digital asset market many weeks to become appealing to a good number of investors again after confidence has gone from the ecosystem. The FTX crisis will be the subject of a series on Amazon and a movie on Apple, both of which are scheduled for production as investors wait for a resurgence of confidence in cryptocurrencies.

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