Daily Wrap Up 11 July 2022

11 Jul 2022 04:06 PM

Fresh Chinese covid restrictions hits sentiment

Stock markets are lower this afternoon as China has reintroduced restrictions to try and curb the spread of Covid-19. The Beijing authorities are operating a zero Covid policy, and the move back towards imposing restrictions has acted as a reminder the economy will find it difficult to maintain stability for a prolonged period because the coronavirus can easily resurface. China is the second largest economy in the world so when its economic activity is curtailed, the impact is felt around the globe. In London, energy, mining, and travel stocks are lower. The FTSE 100 is holding up relatively well because it is only down 0.15%. Recession fears are hanging over the eurozone, and in turn the DAX and the CAC are down 1.2% and 0.7% respectively.

Last Friday the US 10-year yield traded above 3% because of the better-than-expected non-farm payrolls report. The relatively high yield put pressure on equities and once again the tech-heavy NASDAQ 100 is suffering the most of the US indices.

The euro is in the firing line amid mounting fears the currency bloc is heading for negative growth. Despite the record high inflation in the region, the European Central Bank has yet to lift rates. The ECB have made it very clear they will hike rates later this month, but there are worries the bank has left to too late to act, and that inflation might spiral out of control. It is argued that Federal Reserve have lost control of CPI, and keep in mind they have hiked rates by 150 basis points in the past four months, so things could get a lot uglier for the eurozone. EUR/USD is trading below 1.0100, its lowest mark since December 2002. The single currency is lower across the board as it is down against the Swiss franc, the pound, the Canadian dollar, and the Japanese yen.

China is one of the largest importers of commodities in the world so it is no surprise that energies and industrial metals are lower due to concerns that demand will diminish. Copper is the underperformer of the metals as it has lost over 3%. Gold is a touch lower because it is caught between the safe haven play and the very strong US dollar. Oil is coming under pressure on account of the China story, and WTI is 1.6% lower.

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