China in focus as the new trading week gets underway

Market Update

Market volumes are light on Monday, partly due to the fact that Japan is officially on Holiday today and the market is in limbo ahead of Chair Powell’s testimony before US Congress tomorrow, which is set to be the highlight of the week.

Stocks are at risks of coming under pressure today in Europe and the US as numbers are showing that outbreaks of COVID-19 in China are on the rise, with worries that growing of tighter restrictions in the country.

Should this come to pass, the impacts on economic growth and for global supply chains will be negative. An outbreak of 20 new cases were recorded over the weekend. Mass testing is underway for the 14 million residents of Tianjin. The particular province borders on Beijing, so this could be a big problem for China.

It should be noted that we are just weeks out from the opening of the Beijing Olympics, bordering Tianjin, so the nation may not wish for a total lockdown in the country, similar to when COVID-19 first arrived in China. But tighter restrictions may be coming.

Also, from China today, a leading property developer is offloading properties at an accelerated pace – asset sales needed to meet debt repayment obligations. The property sector in China is one of the main risks for Chinese investors.

In terms of market moves, equity markets are mostly unchanged on the open, however, the US dollar is stronger against most major currencies, except the pound, and the greenback is also gaining ground against precious metals.

Seasonal effects underpinning metals last week may be waning. This is something we saw last year, where gold and silver rose during the first trading week of the year, and then moved considerably lower than onwards.

According to Bloomberg, Goldman Sachs has raised its rate hike expectations for the Federal Reserve to four interest rate increases. The investment bank is citing rapid jobs market progress and hawkishness in the December FOMC minutes.

Just to counter that, the International Monetary Fund (IMF) have released a statement this morning noting that a rapid rate in increase of United States interest rates could start to rattle global financial markets.

Cryptos have started to stabilize after taking a big hit on the first trading week of 2022. Bitcoin traded down around 15 percent from its yearly opening price last week. Ethereum also had a terrible week and briefly dipped under $3,000.

Day Ahead

There isn’t too much to get excited about in the day ahead. The EU Unemployment report is coming during the European session, however, it doesn’t usually move markets. Markets are likely to be much more focused on Omicron headlines (potential lockdowns, infection and hospitalisation rates etc.) and especially what is happening in China, due to the increased infection rate in Beijing over the weekend.