The authorities in China are intensifying lockdowns in Shanghai and Beijing in their latest attempts to eradicate Covid. Xi Jinping doubled down on the zero-Covid strategy last week. But the backlash will grow, with lawyers questioning the legality of tougher measures.
Companies have warned that the lockdowns in Shanghai are denting sales and putting severe pressure on already strained supply chains. The ‘stagflationary’ impulses buffeting the global economy will be exacerbated.
The jobs crisis is worsening in China, with Premier Li Keqiang warning of a “grim” outlook for the labour market. Rising unemployment and falling property prices are threatening to push China into a financial, and political, crisis. The PBoC is eschewing dramatic rate cuts, which is a mistake.
New home sales in 23 major Chinese cities slid 33% during the recent five-day national holiday, compared to the same period a year earlier, despite support measures introduced for the property market. The Hang Seng Properties Index had dropped 3.6% on Friday. The RMB is sliding against the dollar.
The data on industrial metals suggest the efforts by Beijing to prop up the economy are simply not working. Since the peak on March 7th, the LMEX index has fallen 16.6%.
The lockdowns in China are spilling over into global stock markets, which are down again this morning. Our target for the S&P 500 of 4,000 could be reached this week. We now have a new target of 3,750, but (likely) problems with US Treasury auctions could see these levels breached.
