Markets hit by China lockdown fears; UK manufacturing confidence slides amid supply crunch – as it happened

From 25 Apr 2022

03.55

China market’s worst day since February 2020

Residents and office workers wearing face masks line up for mass coronavirus testing outside a commercial office complex at the central business district in Beijing.

Photograph: Andy Wong/AP

China’s benchmark stock index has suffered its worst day since early in the pandemic, after a day of heavy selling.

The CSI 300 index has closed down 4.94% today, its biggest one-day drop since February 2020, as Beijing’s largest district begins mass-testing and Shanghai’s lockdown enters its fourth week.

The CSI 300, which tracks the top 300 companies traded in Shanghai and Shenzhen, tumbled by 198 points to close at 3,815 points, its lowest since May 2020.

China’s CSI 300 index falls 4.9%, most since February 2020. pic.twitter.com/9QeQnL9RIX

— Jean-Charles GAND (@jeancharlesgand) April 25, 2022

Traders are anticipating export disruption, and a hit to growth, as China tries to stamp out Covid-19 cases, as Jeffrey Halley of trading firm OANDA explains:

China has tightened parts of the Shanghai lockdown, including erecting fences around apartment buildings with Covid-19 infected individuals. Meanwhile, residents of the Chaoyang district of Beijing will have to submit to three days of testing to get on top of the omicron outbreak there, with parts of it “sealed” or “controlled,” to paraphrase Bloomberg’s story this morning. Although some parts of China have been under restrictions longer than Shanghai, omicron’s arrival in Beijing would be an ominous development.

It is important to remember that although market darlings like Tesla and Foxconn are operating normally in China under a “closed-loop,” and China is vigorously playing whack-a-mole across the country to enforce the Covid-zero policy, omicron only has to get lucky once, while those manning the ramparts have to get lucky 100% of the time. Just ask any other previously Covid-zero country.

The difference here is that China is the world’s second-largest economy and has shown no signs it intends to live with the virus.

It would be a brave man that bets on President Xi Jinping backtracking on anything he says he is going to do, or on the government in general. With that in mind, the likely pressure valve is going to be disruption to China’s export machine, and a cratering of consumer confidence.

25 Apr 2022

16.39

A late PS: Wall Street has shrugged off its earlier losses, to close in the green.

Despite concerns over China’s lockdowns, the Dow Jones industrial average ended the day 0.7% higher at 34,049 points, up 238 points in the session, with technology and consumer firms among the gainers.

Johnson & Johnson (+2.5%), Microsoft (+2.4%) and American Express (+2%) led the gainers, while communications group Verizon (-3.1%) and oil major Chevron (-2.1%) lagged.

All three major U.S. stock benchmarks closed higher Monday, as Treasury yields fell and investors appeared to shrug off concerns over China’s Covid-19 lockdown.

The Dow Jones Industrial Average finished up 0.7%, according to preliminary FactSet data: https://t.co/cZG5xfPb13 pic.twitter.com/J85iD6hxkn

— MarketWatch (@MarketWatch) April 25, 2022

Tech stocks benefited from a drop in bond yields today, as investors anticipated a slower-than-hoped recovery. Twitter jumped around 5.6% after agreeing to Elon Musk’s takeover offer.

As CNBC points out, US stocks have already been on a poor run:

Stocks bounced after the Nasdaq Composite fell into a bear market last week. The Nasdaq is now down 19.8% from its record, while the S&P 500 is back in correction territory, down 10.8% from its high. The Dow is coming off its worst one-day performance since 2020 on Friday and four straight losing weeks. The S&P 500 and the Nasdaq fell for three consecutive weeks.

Wall Street is bracing for a stacked week of earnings, particularly reports from major technology companies. About 160 companies in the S&P 500 are expected to report earnings this week, and all eyes will be on results from mega-cap tech names, including Amazon, Apple, Alphabet, Meta Platforms and Microsoft.

“This week may easily be a fork in the road of equities. … Bottom-up drivers will either confirm or reject what the challenging macro backdrop has given us over the last three weeks,” MKM’s JC O’Hara said in a note.

Dow stages big reversal Monday, closing up by more than 200 points @CNBC https://t.co/4vvJRi57jH

— Patrick Manning (@PatrickDManning) April 25, 2022

25 Apr 2022

15.40

Twitter agrees Elon Musk takeover deal

Dan Milmo

Twitter has agreed to sell itself to Elon Musk, the world’s richest man, in a $44bn (£35bn) deal.
The deal puts the Tesla chief executive in charge of a company with 217 million users and an influential role in shaping the political and media agenda on both sides of the Atlantic. Twitter’s initial reluctance to accept a transaction appeared to fade after Musk confirmed a funding package for the deal and shareholders warmed to it. Musk has signalled that Twitter will be overhauled under his leadership, including changes in content moderation, having described himself as a “free speech absolutist”.

The deal comes after a dramatic few weeks of speculation about Twitter’s future, triggered by Musk’s emergence as the platform’s largest single shareholder on 4 April. He then declared a $43bn takeover bid on 14 April, which prompted Twitter’s board to signal its displeasure at his overtures by adopting a so-called poison pill defence 24 hours later.

However, the apparent opposition of Twitter’s board faded after Musk drew up a $46.5bn funding package for the bid, including $21bn of his own money. According to reports, both shareholders and the Twitter board began to take the offer seriously once finance had been put in place.

The deal is not expected to face serious scrutiny from US competition authorities because Musk’s major business interests – an electric car company, the SpaceX rocket business and tunnelling firm the Boring Company – do not compete with Twitter.

However, the deal is likely to draw comment from politicians and campaigning bodies given Twitter’s influence as an information source and Musk’s stance on free speech.

Twitter agrees Elon Musk takeover deal

Read more

Five things in Elon Musk’s in-tray after Twitter takeover

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25 Apr 2022

12.19

European markets close in the red

A general view of the floor at Madrid’s Stock Exchange main heaquarters today.

Photograph: Vega Alonso/EPA

Stock markets across Europe have closed with losses across the board.

Fears that China’s Covid-19 outbreaks will hit global growth sent the UK’s FTSE 100 index down by 1.9% by the close of trading.

The blue-chip index ended 141 points lower at 7,380, its lowest close in over five weeks and its biggest drop since early March.

Mining stocks led the fallers, after the tumble in commodity prices today, with Anglo American (-6.8%) followed by BP (-6.1%) and Glencore (-5.6%).

The pan-European Stoxx 600 index lost 1.8%, hitting a one-month low. France’s CAC 40 dropped by 2% as anxiety over the risk of lockdowns in China outweighed relief that Emmanuel Macron had won a second term as France’s president.

Michael Hewson, chief market analyst at CMC Markets, sums up the day:

European markets have been a sea of red today, after a weak lead from Asia which was prompted by sharp falls in Chinese markets as the Covid situation in Shanghai continued to deteriorate, with deaths rising to a record level. Notwithstanding that, covid cases are now starting to manifest themselves in Beijing, raising concerns over a strict lockdown there.

This, in turn, has prompted concerns that China’s zero covid policy will hobble the ability of the Chinese government in meeting its GDP target for this year. The 5.5% target had already started to look difficult to achieve after Q1 GDP came in at 4.8%, and with little sign of an economic reopening this target is already being revised lower by various banks.

The re-election of Emmanuel Macron as French President has almost become an irrelevance to the wider overall concerns around the global economy, offering little in the way of a lift to French markets or the euro.

25 Apr 2022

12.07

Brent crude falls through $100/barrel

Economic slowdown fears have pulled Brent crude oil prices back below the $100 mark, for ther first time in a fortnight.

Brent is now down over 6% today at $99.64 per barrel, on jitters that further China lockdowns would mean lower demand for energy.

Ole Hansen, head of commodity strategy at Saxo Bank, says China is heading for the worst oil demand shock since early 2020.

Supply worries have not suddenly disappeared with Libyan supply disruptions as well as sanctions and a potential widening ban against Russian crude oil import also lingering.

For now, however, the market is in risk-off mode with the risk of longs getting squeezed.

25 Apr 2022

11.36

ECB’s Panetta demands action over crypto ‘Wild West’

A senior European Central Bank policymaker has called for co-ordinated global action to regulate crypto-assets and protect consumers from danger.

Fabio Panetta, Member of the Executive Board of the ECB, compared crypto to the gold rush, where “greed and lawlessness” saw “the few exploited the dream of the many”.

Panetta told an audience at Columbia University that crypto-assets are bringing about instability and insecurity – the exact opposite of what had been promised in the landmark 2008 white paper on bitcoin.

In a no-holds-barred speech, Panetta says:

They are creating a new Wild West. To quote Littlefinger from Game of Thrones, “chaos is a ladder”. The story does not end well for this character. However, it only takes a few to climb high on the ladder – even if their gains are only temporary – to convince many others that they are missing out.

Indeed, the crypto market is now larger than the sub-prime mortgage market was when – worth $1.3trn – it triggered the global financial crisis. And it shows strikingly similar dynamics. In the absence of adequate controls, crypto-assets are driving speculation by promising fast and high returns and exploiting regulatory loopholes that leave investors without protection. Limited understanding of risks, fear of missing out and intense lobbying of legislators drive up exposures while slowing down regulation.

We must not repeat the same mistakes by waiting for the bubble to burst, and only then realising how pervasive crypto risk has become in the financial system. And while some may hope to be smarter and get out in time, many will be trapped.

Now is the time to ensure that crypto-assets are only used within clear, regulated boundaries and for purposes that add value to society. And it is time for policymakers to respond to the people’s growing demand for digital assets and a digital currency by making sovereign money fit for the digital age.

🧵 Globally coordinated efforts are needed to bring crypto-assets into a regulatory framework, says Executive Board member Fabio Panetta at @Columbia. We must not repeat past mistakes by waiting for the bubble to burst before acting https://t.co/dGo0HV0KmL

1/5 pic.twitter.com/2MpmkmtoG4

— European Central Bank (@ecb) April 25, 2022

Panetta also compared the crypto market to a Ponzi scheme, explaining:

Rising prices are fuelled by extensive news reports and investment advice on social media, highlighting past price increases and features such as artificial scarcity to create the fear of missing out. As a result, many invest without understanding what they are buying.

Like in a Ponzi scheme, such dynamics can only continue as long as a growing number of investors believe that prices will continue to increase and that there can be fiat value unbacked by any stream of revenue or guarantee. Until the enthusiasm vanishes and the bubble bursts.

Panetta: Unbacked crypto-assets can’t even fulfil their objective of facilitating payments, since they are too volatile to perform as money. We must decide how to regulate them, seeking a balance between innovation, financial stability and consumer protection

2/5

— European Central Bank (@ecb) April 25, 2022

Panetta: Crypto-assets already have a larger market than sub-prime mortgages had before the global financial crisis started. The longer we wait, the more exposures and vested interests build up. And the harder it will be to act

3/5

— European Central Bank (@ecb) April 25, 2022

Panetta: Regulation is progressing in Europe and worldwide, but not swiftly enough. We need globally coordinated efforts to bring crypto-assets into a regulatory framework and ensure they follow the same standards as the rest of the financial system

4/5

— European Central Bank (@ecb) April 25, 2022

Panetta: Central banks must engage even more with digital innovation by upgrading wholesale financial infrastructures, operating fast retail payment systems and preparing for the issuance of central bank digital currencies

5/5

— European Central Bank (@ecb) April 25, 2022

Here’s the full speech:

For a few cryptos more: the Wild West of crypto finance

25 Apr 2022

10.48

The U.S. economy expanded in March, but growth softened compared with the previous month, data shows.

The Chicago Fed National Activity Index, which tracks economic activity and inflationary pressuures, decreased to 0.44 in March from a revised 0.54 in February. That suggests the US kept growing last month, but at a slower rate.

US Chicago Fed National Activity Index Mar: 0.44 (est 0.45; prev 0.51; prevR 0.54)
CFNAI consistent with solid but slowing economy in Marchhttps://t.co/iy0Soc8iWC https://t.co/i9DcaDGQyy pic.twitter.com/xR3pSCbRQM

— Neil Sethi (@neilksethi) April 25, 2022

25 Apr 2022

09.49

Stocks open lower in New York

The New York Stock Exchange.

Photograph: Caitlin Ochs/Reuters

Wall Street has joined today’s selloff, as investors fret about the prospect of more lockdowns in China and aggressive US interest rate hikes.

The Dow Jones industrial average has dropped by 270 points, or 0.8%, to 33,540 points, its lowest in over a month.

That follows its worst session since early in the pandemic on Friday, when the Dow lost 981 points.

Oil company Chevron (-2.6%) is the top faller on the Dow, with aerospace manufacturer Boeing (-2%) and construction equipment maker Caterpiller (-1.75%) also among the fallers.

The tech-focused Nasdaq has extended its recent selloff too, down another 0.9%, while the broad S&P 500 index is down 1%.

U.S. stocks open lower, extending selloff as China fears spark another round of jitters https://t.co/ZEfiYHUkUc

— MarketWatch (@MarketWatch) April 25, 2022

Fawad Razaqzada, market analyst with City Index and FOREX.com, says Covid worries are roiling financial markets.

Concerns about demand have intensified as after Beijing locked down parts of Chaoyang District as the virus spread there. This triggered panic as people had hoped that lockdowns would ease in Shanghai rather than more restrictions being imposed elsewhere.

But now the prospects of the capital city being put into a full lockdown has unnerved investors worldwide. Not only does this imply weaker demand from China, but it could reignite supply chain woes, further exacerbating inflationary pressures.

25 Apr 2022

07.54

Shares in Twitter have jumped in pre-market trading, on reports that the social media group is in the final stretch of negotiations about a sale to Elon Musk.

Here’s Reuters’ latest:

Twitter Inc is nearing a deal to sell itself to Elon Musk for $54.20 per share in cash, the price that he originally offered to the social media company and called his ‘best and final’, people familiar with the matter said.

Twitter may announce the $43bn deal later on Monday once its board has met to recommend the transaction to Twitter shareholders, the sources said. It is always possible that the deal collapses at the last minute, the sources added.

Twitter has not been able to secure so far a ‘go-shop’ provision under its agreement with Musk that would allow it to solicit other bids from potential acquirers once the deal is signed, the sources said.

Still, Twitter would be allowed to accept an offer from another party by paying Musk a break-up fee, the sources added.

Twitter and Musk did not immediately respond to requests for comment.

Twitter shares are up over 5% at $51.58 in pre-market trading, up from $48.93 on Friday night, approaching Musk’s proposal.

Twitter shares jump 5% on reports that it’s ready to accept Elon Musk’s bid https://t.co/SOwMkMMmH4

— CNBC (@CNBC) April 25, 2022

Twitter ‘in takeover talks with Elon Musk’ after pressure from shareholders

Read more

25 Apr 2022

07.32

Lunchtime markets: Slowdown fears rattle markets

Global markets are continuing to show heavy losses today, as rising Covid-19 cases in China fuel worries about economic growth.

In London, the FTSE 100 index is down 160 points, or 2%, at 7368 points, a five-week low, after China’s stock market saw its biggest one-day drop in over two years.

CHINA CSI 300 Crushed approaching covid lows pic.twitter.com/TfZWEDlXDy

— Michael J. Kramer (@MichaelMOTTCM) April 25, 2022

Meltdown in Chinese financial markets today as omicron spreads to Beijing, while Shanghai shows no sign of easing its month-long lockdown. Low elderly vaccination rates mean the central govt is likely to continue with its strict approach.
CSI 300 -4.9%
HSCEI -4.1%
CNH -0.9%

— Richard Frost (@frostyhk) April 25, 2022

Anxiety about the economic consequences of China’s Covid-19 outbreaks are driving the selloff, with mining group Anglo American now down 7.3% and Glencore off 6.5%.

BP are down 4.5%, with crude oil prices still down around 4% on forecasts that China’s energy demand will be hit by lockdowns.

Other internationally-focused firms are also among the major fallers in London, reflecting concerns over the global economy as the US Federal Reserve looks likely to hike US interest rates sharply this year.

Fashion group Burberry has lost 4.5% and equipment rental group Ashtead is down almost 5%.

Raffi Boyadjian, lead investment analyst at XM, says:

A worsening outbreak of Covid-19 in China dragged risk assets lower at the start of the new trading week as stocks extended Friday’s losses while the US dollar scaled a fresh two-year high against a basket of currencies. Restrictions in Shanghai are being tightened again, having been partially eased only last week, after a fresh flare-up in daily cases.

The latest measures are likely the most draconian yet with infected people being transferred to government quarantine facilities, while some neighbourhoods have been fenced off. But perhaps an even bigger warning sign for investors is that Beijing is also now seeing a spike in infections. Authorities have placed parts of Chaoyang district under lockdown and ordered residents to get tested three times this week.

With markets still reeling from the fallout from the war in Ukraine and global supply chains yet to normalize, China’s zero-Covid strategy is threatening to destabilize supply lines even further, fuelling the shortages and adding more pressure on prices.

China’s benchmark CSI 300 index slumped by almost 5% today as the government’s growth target of 5.5% looked increasingly unattainable.

Investors have been less than impressed by the economic support measures that have been announced so far by Chinese policymakers as they don’t go far enough to address the concerns about a major slowdown.

Photograph: XM

Updated at 07.36 EDT

25 Apr 2022

06.54

UK manufacturing confidence hammered after Ukraine invasion

Confidence among UK manufacturers has fallen at the fastest rate since the first Covid-19 lockdowns, as the Ukraine war and rising inflation bites.

Business sentiment and export optimism both fell in April, at the sharpest rates since April 2020, as economic uncertainty and commodity prices both jumped.

The balance between UK factories who were more upbeat about their business situation, rather than pessimistic, slumped to -34% in April from -9% in January, according to the CBI’s first quarterly Industrial Trends Survey since Russia’s invasion of Ukraine.

That’s the biggest drop in confidence since April 2020, in the first wave of the pandemic.

The April CBI Industrial Trends Survey, sponsored by @AccentureUK, found that business & export optimism both fell at the sharpest pace since April 2020. #ITS pic.twitter.com/u29ZO5ZFV9

— CBI Economics (@CBI_Economics) April 25, 2022

Investment intentions for the year ahead were much weaker across the board in April compared to three months ago, suggesting that firms are cutting back.

Companies also reported that growth in output and new orders slowed over the last quarter, with new orders expected to keep falling in the next quarter — a sign that the economy is slowing.

Cost pressures remained intense, with average costs growing at the fastest rate since July 1975 . Firms also hiked domestic prices at the fastest pace since October 1979, which will feed through to consumers as higher prices in the shops.

The cost of raw materials was the most important factor behind expectations for cost growth in the next three months (80% of respondents said this was extremely important), followed by energy costs (59%), transport costs (41%) and labour costs (38%).

Average costs in the quarter to April grew at the fastest rate since July 1975, while domestic prices grew at the fastest pace since October 1979. #ITS pic.twitter.com/db0KJCTGvQ

— CBI Economics (@CBI_Economics) April 25, 2022

Anna Leach, CBI deputy chief economist, explains:

“Manufacturing orders and output continue to grow, albeit at slower rates.

But the war in Ukraine is exacerbating the Covid-related supply crunch, with cost increases and concerns over the availability of raw materials at their highest since the mid-1970s.

It’s little wonder that sentiment has deteriorated sharply over the past three months and manufacturers are now scaling back their investment plans.

Investment intentions for the year ahead weakened across the board in comparison to January. #ITS pic.twitter.com/oPn7z3ZoRB

— CBI Economics (@CBI_Economics) April 25, 2022

Updated at 07.43 EDT