Even as a new subvariant generates a new wave of infections, many countries have decided to live with the coronavirus. China, on the other hand, is a notable exception. China uses “snap” lockdowns to stop COVID-19 from spreading within its borders. Furthermore, the policy is looming over the global economy and financial markets; it is adding uncertainty as investors try to assess the effects of the Ukraine conflict and rising inflation.
As part of the major testing, approximately 11 million inhabitants in Shanghai’s eastern half will be prohibited from leaving their homes for four days beginning Monday. Beginning Friday, the staggered lockdown will be extended to the other half of the city; it has around 14 million people.
The news caused a dramatic drop in global crude prices, as traders bet that the limitations would lower demand from a major consumer. Daily, China imports roughly 11 million barrels of oil.
Outlook on The Chinese Economy
Stocks, on the other hand, are holding their footing. On Monday, the Shanghai Composite Index finished nearly 0.1 percent higher. Hence, The Shanghai Stock Exchange stayed operational and said it would provide online services to companies interested in listing shares.
Shanghai’s lockdown is significant not only because of its size but also because of its extensive financial and commercial ties. According to Larry Hu of Macquarie Capital, Shanghai accounts for around 4% of China’s economic production.
The shutdown and uncertainty about what Beijing would do next in its ferocious war against the virus pose a threat to China’s 5.5 percent economic growth objective, which is already the lowest in three decades. “Because lockdown is effective, China should be able to contain the virus in the next few weeks,” Hu said.
The bond market is becoming more volatile as investors bet that the Federal Reserve will need to be more forceful at its next meetings to rein in surging inflation.
Moreover, on Monday, yields on five-year US Treasury notes, which move in the opposite direction of prices, surpassed those on 30-year bonds.