China’s COVID lockdown ripples through financial markets from buzai232's blog

China’s COVID lockdown ripples through financial markets

For more than a decade, Apple has been one of those companies whose earnings continually impress investors and analysts alike, in a near-continuous cycle of good news. In April, that changed.To get more news about HYCM兴业投资, you can visit wikifx.com official website.

Despite the company posting one of the best quarters in its 46-year history, investors were shocked to hear a dire prediction from CEO Tim Cook. Instead of its usual bullish outlook, Apple warned that the company could see sales decline by as much as $US8 billion due to the impact of China’s renewed lockdowns to prevent the spread of COVID.1

Apple is just one of many major companies concerned that China’s zero-COVID policy would have a material impact on their business. Not only is supply of key goods going to be affected by the closure of factories and the ban on transport to affected areas, but the Chinese consumer market has been hit hard by the shutdown, significantly crimping demand and the country’s growth prospects.

According to investment bank Nomura, about a quarter of the country’s population — some 344 million people — are in some form of lockdown. It’s a massive drain on the economy, causing output to fall 3.5% in March, while restaurant consumption is down 16%.2

By May 2, the impact on China’s industrial production had been confirmed. China’s factory output had slowed to its lowest level since February 2020 — effectively the height of the pandemic.3 The scale of China’s heavy-handed response to COVID numbers is now hitting home for markets, and currency markets have been particularly worried.
On April 25, the Renminbi (RMB) slumped against the US dollar as investors digested the severity of the lockdown and feared that the lockdown would spread to Beijing. From being one of the most powerful currencies last year, China’s yuan fell more than 4% in April, its biggest monthly drop in 28 years.4

The stock market has also been hit. The benchmark Shanghai Composite Index troughed at more than 20% down year-to-date, while the tech-heavy SZSE Composite Index was down 31%. At the end of April China’s stocks were the worst performing globally, with the exception of Russian indices.5 And as foreign investors sell down their holdings, switching out of the RMB to repatriate to their own currencies, this creates downward price pressure on the RMB.Restrictions in China have stalled demand for the raw materials consumed in Chinese factories, and the so-called commodity currencies linked to them.

As the lockdown took hold and factories shut down, the Australian dollar reversed its upward trajectory and turned comprehensively downward. From a peak of 75.88 USD on April 5, the AUD has fallen nearly 6% as investors contemplated the impact of a shutdown on demand for Australian commodities like iron ore.

Iron ore prices had risen 77% between November 2021 and March this year as factories ramped up to meet growing global demand. But by the middle of March, demand had already started to wane and by May the price of iron ore, as recorded at the port of Qingdao, had fallen 10% and major mining companies like BHP fell in unison — BHP shares lost 10% in just a month.

The New Zealand dollar has also underperformed. As a major trading partner to both Australia and China, its currency shed more than 7% in April.

Note, however, that there are two sides to this equation, and the US dollar is currently outperforming other major currencies given it is seen as a ‘safe haven’ option while the war in Ukraine rages and economic uncertainty lingers. The rate of growth and rising inflation in the US also continue to put upward pressure on interest rates, a key booster of currencies.