China entangled in the management of the pandemic

The People Bank of China promises to support the Chinese economy through a variety of measures, including easing credit conditions for small businesses, lowering the reserve ratio for banks’ foreign currency holdings, or ending regulatory action against technology companies. But lower rates are hampered by the need to clean up the housing sector and, above all, monetary policy can do little to counter the restrictive measures taken to counter the pandemic. The pandemic has now spread to more than 20 provinces and given the contagiousness of the Omicron variant and its sub-variants, the zero-covid strategy is proving both ineffective and very costly economically. All eyes now turn to the Communist Party Politburo meeting at the end of April to see if a change of strategy is possible. The yuan continues to plunge against the USD.

Asian markets rebounded on hopes of further action, while US markets welcomed Elon Musk’s takeover of Twitter and repositioned themselves ahead of the release of many listed companies’ Q1 results. The European equity markets should therefore rebound. They had not reacted to a better than expected IFO survey yesterday, which seemed to confirm, in the wake of the PMIs, that the economic cost of the war may have been overestimated (provided that an embargo on Russian hydrocarbons is not decided quickly). Little movement on the EUR/USD which stabilized around 1.07 after yesterday morning’s drop.

Some interesting US indicators today: Durable Goods Orders, Leading Indicator for Productive Investment, Household Confidence, New Home Sales and House Prices. Some speeches from ECB members as well.