Oil slides, dollar rises as China curbs COVID back, official deaths reported

In April 2022, a medical worker wearing protective clothing conducts nucleic acid testing and sampling for a woman in Shanghai, China.

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A return to tight COVID restrictions in a Chinese city that many see as a test case for a more easing policy led to speculation on Monday that the country could return to its rule. COVID-free school.

Schools and universities in Shijiazhuang is under lockdown and at-risk residents are instructed to stay at home for five days, others are advised to stay home “in principle,” according to a statement in the Shijiazhuang Daily reported by Bloomberg. quote.

The surge in COVID cases and the first deaths reported by China’s official media since May is denting optimism that the country has reached an inflection point in its policy of weighing on pressure. economic output.

The Beijing Daily reported that three people had died in the capital from the disease. They are between the ages of 87 and 91. More than 900 new cases in Beijing were reported on Sunday. The last time a death was reported Shanghai was locked down.

Goldman cuts oil target: Oil futures contract (CL1:COM) (CO1:COM) (NYSEARCA:USO) (NYSEARCA:BNO) -0.5% fell, but fell to a low following the news in China.

Goldman Sachs has cut its fourth-quarter 2022 forecast for Brent crude by $10 a barrel to $100, citing restrictions in China and saying new curbs could equal the cuts. recent OPEC+ production. Goldman said the market “has every right to worry” about future oil fundamentals.

Brent has now wiped out all of the gains it has had since the start of Q4, while WTI has only increased slightly since Oct. 1.

More market impact: Chinese stocks fall, with Hang Seng (HSI) 2% off and Shanghai Composite (SHCOMP) down 0.4%.

Dollar (DXY) rose, with the possibility of a return to growth in China being a big reason for traders to price demand for the greenback lower.

In the bond market, 22V Research said the rise in COVID-19 cases in China has “impacted global growth expectations, encouraging a deeper yield curve inversion”. In the Treasury bond market, the difference between the two-year maturities (US2Y) and 10 years (US10Y) hit the widest inverse since the mid-80s and is currently at a cyclical high of 72 basis points.

Looking at emerging markets last week, Citi issued a warning about over-optimism when it comes to China and the Fed’s pivot.

“As Covid remains a major threat to Chinese household confidence, and since we still think the Fed has a lot of work to do, it may be prudent to downplay the week’s optimism,” Citi said. before”. “China’s path to a full reopening remains uncertain and is preferably gradual.”


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