What protests in China could mean for the global economy

Protests against China’s extended and restrictive Covid regulations spread across the country over the weekend. The demonstrations against Chinese President Xi Jinping and his costly Covid-19 policy are an extremely rare case of widespread civil disobedience.

While the protests pose an unprecedented challenge for Xi, they also carry market and economic implications.

Oil plummeted to 2022 lows on Monday, while stocks in companies that rely on China for production felt the heat. Apple fell 2.6% after reports that unrest at one of its factories could result in 6 million fewer iPhone Pros this year.

What’s up: China’s controversial Covid-zero policy has affected everyday life and weighed heavily on the economy. When outbreaks get worse, entire cities are shut down: Shanghai was shut down for about two months this spring and Chengdu, a city of 21 million people, was shut down in the fall.

Earlier this month, Beijing eased some Covid-related restrictions, sparking hopes the economy could reopen fully soon, but local governments have once again tightened controls as cases surged.

The policy appears not to be working as cases have reached record highs, but China’s low vaccination rate, relatively ineffective vaccines and an aging population mean the alternative could be very deadly.

The rising political tension has also been difficult to interpret. At first, the protests seemed focused on Covid restrictions, but now they seem to carry broader demands for political reform: the blank sheets of paper held by protesters in Shanghai, the country’s financial hub, have already become iconic symbols of defiance against a government limiting free speech.

Economic impact: people in lockdown say they struggle to find food and other necessities. Economic growth has dropped and unemployment has risen as a result of the lockdowns.

The policy has also led to major global output restrictions that are propping up inflation. Global supply chain pressures increased moderately in October after five consecutive months of easing, largely due to longer lead times in Asia, according to the Global Supply Chain Pressure Index from the Federal Reserve Bank of New York.

However, commodities fell on concerns about China on Monday. Oil prices fell sharply as investors worried that the rise in Covid cases and protests in China could dampen demand from one of the world’s biggest oil consumers.

What comes next: Chinese government officials are in a strange situation. They don’t want to end their covid policy, but they also want to ensure that political unrest doesn’t grow.

Companies doing business in China are on the lookout for any clues about what the future might hold. They are also considering moving production out of the country for the longer term – Apple has already moved some of its production to India.

Goldman Sachs, in a research report published late on Sunday, predicted that the protests could prompt China to abandon its Covid-zero policy sooner than expected, with “some chance of a forced and disorderly exit”.

But the next few days could be crucial. If the protests intensify again, the Chinese government will likely be forced to react in some way. This Tuesday (29), it announced an “action plan” to increase vaccination rates among the elderly.

But “with a rapid spread of new Covid cases, it’s hard to imagine a broad lifting of restrictions that would significantly boost the country’s economic outlook for the year ahead,” said Christopher Smart, chief global strategist at Baring. “In any case, the continued uncertainty of pandemic policy will lead to more pressure on global supply chains and keep prices higher than they would otherwise be.”

big data week

US investors took a short break from the trading session last week as they celebrated the Thanksgiving holiday. Now, the holidays are definitely over.

This week is full of important economic data releases, many of which will help guide the Fed’s next decision on raising interest rates in December.

Here’s what to look out for.

Tuesday brings a real estate bonanza: At 9 am ET, the September Home Price Index (HPI), a measure of change in single-family home prices, will be released. The S&P/Case-Shiller Home Price Index for September, which measures the change in the selling price of single-family homes in 20 US metro areas, will also be released.

Also on Tuesday: The Conference Board’s November measure of consumer confidence in economic activity. This is an important indicator as it can predict consumer spending.

Wednesday is a big day for the Fed: Federal Reserve Chairman Jerome Powell will discuss the economy and job market at an event hosted by the Brookings Institution at 1:30 pm ET. There will also be a Q&A session with the audience. Traders will closely follow his speech for hints on future monetary policy.

Fed Governor Lisa Cook will also discuss the economic outlook and monetary policy at an event hosted by the Detroit Economic Club, and Fed Governor Michelle Bowman will discuss the future of small banks, with a Q&A session later. .

More data: Wednesday also brings some employment data. The first is the ADP National Employment Report, a measure of monthly change in private employment based on payroll data from approximately 400,000 US commercial customers. Next comes the October JOLTS, a US Bureau of Labor Statistics survey to measure job openings.

Revised numbers for Q3 GDP and PCE inflation are also expected and the October Pending Home Sales, which measures the change in the number of homes under contract to be sold.

Thursday is all about inflation: October Personal Consumption Expenditure Price Index is expected at 8:30 AM ET. The index measures changes in the price of goods and services purchased for consumption. The Core PCE, which excludes gasoline and food, is the Fed’s preferred inflation measure.

Friday is employment day: here are the government unemployment numbers for november. Given that full employment is one of the Federal Reserve’s mandates, it is closely watched.

Chicken is on the menu this holiday season.

Expect heavier holiday sales this season, Bank of America analysts say. Because? Retailers are dealing with a glut of inventory that they’re trying to get rid of, but it’s also about time.

Last year, Americans did their holiday shopping early in the year because they were worried about shortages and because the Omicron Covid wave kept people out of stores ahead of the holidays. This year things are expected to “mimic a normal pre-pandemic holiday,” the analysts wrote, with the exception of one thing: There is an additional day between Thanksgiving and Christmas this year because Christmas Eve falls on a Saturday.

“We think this is likely to result in a frantic chicken game, with shoppers waiting until the last minute for big deals and retailers balancing selling at the highest price with moving enough product,” said Lorraine Hutchinson, research analyst at Bank of America. America.