China is facing some tough choices
Over the weekend we have seen protests against the zero Covid policy spread in different Chinese cities protests that have extended to include demands for more freedom of speech and been more targeted against the central government than local authorities, as is normally the case with Chinese protests.
The protests come after the Chinese government’s loosening of the zero Covid policy seems to have backfired, as it has led to more outbreaks across China (see following pages) that has triggered new restrictions.
The situation now is highly uncertain and China is facing some tough choices:
– If China loosens the zero Covid policy further to meet protesters demands, it will lead to much bigger outbreaks and it will lose control of the virus, leading to more deaths. It then has to decide whether to lock down hard or let the virus spread.
– If China strikes back and reverts to tougher restrictions to stop the outbreaks, then protests would likely increase.
What China chooses is hard to predict at this moment, around 50-50. Both scenarios are likely to lead to a chaotic development over the winter.
However, it will likely have two very different outcomes for markets. In case China decides it has to allow more spread of the virus, it could be positive for financial markets as a recovery would be expected on the other side of the chaos. This would also be inflationary for the global economy once China’s economy recovers.
If China doubles down on the zero Covid policy and hits back at protests, sentiment could take another big hit and lead to renewed weakening of the CNH and declining Chinese stock markets. It would also put downward pressure on oil prices and as such be disinflationary for the global economy..
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, awaits Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.