Shenzhen, a city of 17.5 million people, has been put on lockdown for at least six days to curb a Covid outbreak, with factories in the tech and manufacturing hub being forced to close. This includes Apple supplier Foxconn and over 30 Taiwanese companies (making circuit boards, touchscreen modules, etc.). It was only a matter of time before China locked down another major city.
There is no margin for error at inflation rates nearing 8% (in the US). A higher inflation risk premium needs to be reflected in higher government bond yields. Faster inflation has also hit Asian economies that had initially been immune to price pressures.
WTI crude was down about 8% this morning to $101. This level of oil prices reduces the chances of a recession, but at the same time allows the Fed to raise rates faster.
The US 10-year Treasury yield hit a new multi-year high of 2.10% this morning. The 2-year yield breached 1.80% too. The sell-off in Government bonds is global.
The rise in government bond yields is occurring even as growth prospects for the global economy deteriorate and tensions between China and the US intensify.
US officials are claiming that Russia has asked China for military equipment to help in its invasion of Ukraine. China rebutted the accusations. Sharper dividing lines are being drawn between China and the US, which threatens a bifurcation between the two major powers.
The major internet platforms in China have been promulgating the official party line of Beijing, which is coming into sharp conflict with the ESG mandates of many international funds. Australian pension funds are pulling back from China, on concerns over Xi’s common prosperity drive too. ESG is not dead, but the definitions of what is deemed investable will change.