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Markets rally eyeing China reopening

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China has persisted in its strict zero-Covid policy to stamp out an Omicron-fuelled wave, ordering lockdowns in various cities and shuttering factories and ports
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Global stock markets rallied Tuesday on hopes that China will ease its weeks-long Covid lockdown and gradually reopen businesses.

European exchanges closed higher and Wall Street’s main indices also rose in mid-day trading, spurred by a nearly one-percent rise in April retail sales.

“We’ve seen a much more positive vibe around European equity markets today, with reports out of Asia suggesting that China might be close to looking to ease some of its Covid restrictions, as case rates come down,” Michael Hewson, chief market analyst at CMC Markets UK, said.

“This hope appears to be helping to power some buying interest, and is also pushing up metals, as well as oil prices, with Brent crude at six-week highs,” he added.

Much of Shanghai, China’s economic hub and a city of 25 million, has been under lockdown since April as Beijing attempts to stamp out an Omicron-fuelled virus surge under its strict zero-Covid policy.

The impact of Beijing’s zero-Covid strategy on the world’s second-largest economy was revealed Monday when official data showed that retail sales and industrial production in April on-year had slumped to their lowest levels in more than two years.

World markets have also been roiled by surging inflation, spiralling oil and wheat prices and Russia’s war in Ukraine — leaving investors jittery.

Wheat prices hit a record high in the European market Tuesday at 434.25 euros after the world’s second producer India announced an export ban due to falling output caused by climate change. 

Oil was another area of concern. 

“Oil prices have hit their highest levels since early March as Europe continues to work towards a Russian embargo and China looks to ease Covid restrictions,” said Craig Erlam, another market analyst at OANDA. 

“The question becomes just how much further they’ll go and how uncomfortable it’s going to get,” he said.

Analyst Fawad Razaqzada at City Index was bullish on the demand for oil despite rising prices.

“Demand did fall briefly when China went into a lockdown but now with Shanghai emerging from lockdowns and other cities are likely to follow suit, demand should remain elevated,” he said.

“Unless the OPEC and its allies ramp up production and fast, it is difficult to see how prices can go down meaningfully,” he added.

The British pound was the best performing G10 currency on Tuesday as traders bet that soaring UK inflation, lifted in part by wage rises, will see more monetary policy tightening by the Bank of England.

There are rising concerns that ongoing rapid interest rate rises by the BoE and other central banks including the Federal Reserve to curb decades-high inflation will push the economy into a downturn.

On the corporate front Tuesday, India’s insurance giant LIC slumped on its market debut following the country’s biggest-ever initial public offering, closing nearly eight percent below the IPO price.

Prime Minister Narendra Modi’s government raised $2.7 billion by selling 3.5 percent of Life Insurance Corporation of India. But it was forced to cut back the offer from a planned five percent after markets turned volatile.

Elsewhere, Elon Musk said his planned purchase of Twitter would not go ahead unless he was assured that fewer than five percent of accounts on the platform were fake.

The Tesla owner has bid $44 billion for the social media platform.

– Key figures at around 1530 GMT –

New York – Dow: UP 0.8 percent at 32,482.75 points 

EURO STOXX 50: UP 1.3 percent at 3,734.36 

London – FTSE 100: UP 0.7 percent at 7,518.35 (close)

Frankfurt – DAX: UP 1.6 percent at 14,185.94 (close)

Paris – CAC 40: UP 1.3 percent at 6,430.19 (close)

Hong Kong – Hang Seng Index: UP 3.3 percent at 20,602.52 (close) 

Shanghai – Composite: UP 0.7 percent at 3,093.70 (close)

Tokyo – Nikkei 225: UP 0.4 percent at 26,659.75 (close)

Brent North Sea crude: UP 0.6 percent at $114.91 per barrel

West Texas Intermediate: UP 0.5 percent at $114.75 per barrel

Euro/dollar: UP 0.9 percent at $1.0532 from $1.0436 at 2030 GMT Monday

Pound/dollar: UP 1.2 percent at $1.2478 from $1.2323

Euro/pound: DOWN at 84.44 pence from 84.67 pence 

Dollar/yen: UP at 129.29 yen from 129.08 yen

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Problems soar for airlines despite pandemic recovery

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Things are looking up for airlines as people are looking to travel again, but staffing crunches, strikes and inflation could spoil the recovery
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Desperate to put the coronavirus pandemic behind them, airlines will hold talks on Sunday ahead of a potential summer of chaos with shortages and strikes that could threaten their recovery.

While trade is roaring back to life, representatives from the aviation sector meeting for three days in Qatar have a packed agenda with multiple geopolitical crises including the war in Ukraine and the environment.

Cracks are already showing in the sector’s recovery, though industry figures are optimistic about the future despite the issues.

In the past few weeks, delays and cancellations caused by a lack of staff at airports and strikes for better pay have wreaked havoc upon travellers.

The problems originate with the pandemic when airlines and airports laid off thousands of workers during its worst-ever crisis.

Now, they are scrambling for workers.

Passenger numbers dropped by 60 percent in 2020, and in 2021 it was still down 50 percent. Airlines lost nearly $200 billion over two years.

While some firms in the sector went bankrupt, others — backed often by states — have emerged from the pandemic with profits intact.

European airlines are excited about the prospect for a “beautiful summer”, with some data showing booking rates higher than in 2019. In the United States, the domestic market has almost returned to pre-pandemic levels.

“Airlines are generating cash again, which is a real positive,” said Willie Walsh, head of the International Air Transport Association, during a visit to Paris earlier this month.

The sector’s morale was buoyant after “a very long and barren two years”, he told reporters.

– ‘Not up to speed’ –

The International Air Transport Association (IATA), which represents 290 airlines accounting for 83 percent of global air traffic, will host its annual general meeting in Doha instead of Shanghai after record-high Covid case counts forced it to relocate the forum.

There will be cause for celebration during the event.

In terms of Revenue Passenger Kilometres (RPKs), a measure of total distance flown by paying passengers, activity in April reached 62.8 percent compared with the same month in 2019.

That was the best figure since March 2020. 

Domestic routes, meanwhile, hit 74.2 percent in April, better than international markets which reached 56.6 percent compared with the same period in 2019.

After the Easter holidays fiasco at European airports, Walsh admitted “the system is not up to speed”, but vowed the issues would be addressed.

He was hopeful despite the war in Ukraine and its wider impacts, surging inflation and record prices for jet fuel.

Fuel makes up 25 to 30 percent of companies’ spending, and given the still-fragile state of airlines’ balance sheets, higher costs will be passed on to customers to preserve their profits.

But the effects of Russia’s war in Ukraine are already being felt.

European flights to Asia are constrained by long diverted routes to avoid Russian airspace after having slapped heavy sanctions on Moscow.

– Costly decarbonisation –

With inflation eroding people’s purchasing power, higher costs could weaken demand at a time when companies need to make serious investments to cut their carbon dioxide emissions.

The IATA pledged last October to achieve net-zero carbon emissions by 2050.

The issue will be raised at a general assembly meeting of the International Civil Aviation Organization in the autumn, but a deal between countries is far from certain.

The IATA, which expects 10 billion air passengers annually by the middle of the century compared with 4.5 billion in 2019, refuses to consider any restrictions on growth in order to contain the effects of climate change.

Commercial air travel, often the target of environmental activists, is responsible for between 2.5 and 3 percent of global emissions.

Between “cleaner” planes and sustainable fuel, investment worth $1.5 trillion over 30 years is needed to improve the sector’s environmental impact. The costs will be most likely handed down to the customer, again.

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Bank of Japan keeps easing policy despite US, Europe rate hikes

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The Bank of Japan is sticking to its ultra-loose monetary policy
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The Bank of Japan on Friday stuck to its long-held monetary easing policy even as other central banks around the world hike interest rates to tame inflation.

But it said it would “pay due attention” to foreign exchange markets, a rare comment that comes after the yen hit a 24-year low against the dollar.

In a statement following a two-day policy meeting, the BoJ kept in place its rate of minus 0.1 percent — part of a decade-old action plan aimed at boosting the world’s third-largest economy — bucking pressure to address the impact of a weaker yen.

Its decision runs counter to a global tightening trend to tackle sky-high fuel and food prices linked to the war in Ukraine and supply chain snarls.

Global interest rate hikes have been led by the US Federal Reserve, which this week announced its most aggressive increase in nearly 30 years, and signalled more ahead in a battle to drive down inflation.

The European Central Bank also plans to start a series of rate increases next month, while the Bank of England announced a fifth straight increase on Thursday and Switzerland surprised markets with its own increase, the first since 2007.

The widening chasm between Japanese and US monetary policy has pushed the yen to its lowest level against the dollar since 1998, a cause for increasing concern that even the central bank made reference to.

“It is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices,” the BoJ said, in an unusual reference to forex movements.

After the announcement, one dollar bought 134.23 yen, up from 133.41 yen earlier in the day.

Inflation has been rising for months in the United States and elsewhere as buoyant demand for homes, cars and other goods clashes with supply chain snarls in parts of the world where Covid-19 has been, or remains, a challenge.

The problem got dramatically worse after Russia invaded Ukraine in February and Western nations imposed steep sanctions on Moscow, sending food and fuel prices up at a blistering rate.

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Most Asian markets on recession fears, Bank of Japan in focus

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Investors are keeping a close eye on the Bank of Japan's policy meeting as it lags other central banks in tightening monetary policy
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Asian markets mostly fell Friday after another hefty drop in New York and Europe as central bank interest rates hikes to counter soaring inflation fan fears of a recession.

All eyes are now on a Bank of Japan decision later in the day, with speculation that officials could finally begin to shift from their ultra-loose policies that have left it trailing most of its peers and sent the yen tumbling more than 13 percent this year.

Gone is the optimism that flowed through trading floors immediately after the Federal Reserve on Wednesday announced its biggest rate increase for 28 years as global finance chiefs followed suit, putting a squeeze on dealers’ ability to borrow.

Markets have been tumbling for months as traders contemplate the end of the era of cheap cash that sent valuations to record or multi-year highs, with inflation at levels not seen in decades owing to a surge in energy and food prices.

The Bank of England on Thursday lifted rates for a fifth straight time to their highest since 2009 during the financial crisis, just as the Swiss central bank shocked markets by unveiling its own half-point increase — its first rise in 15 years. 

The European Central Bank has also signalled it will announce a hike soon.

Equities plunged as expectations for recession continue to rise. The Dow ended below 30,000 for the first time in more than a year and the S&P 500 is now at its lowest since December 2020.

With rates rising everywhere else, pressure is building on the Bank of Japan to move away from its policy of keeping its foot on yields.

While officials in Tokyo insist that low rates are still needed to nurture a struggling economy, there is “a building expectation that the Bank of Japan will need to amend their policy stance closer to some version of normal”, said Benjamin Jeffery and Ian Lyngen, strategists at BMO Capital Markets.

Observers said traders were struggling to work out what officials will do, though there is a feeling they will make some concessions with inflation at an eight-year high as energy prices spike in the commodity-poor country.

And while the yen dipped slightly against the dollar Friday it was off the 24-year lows touched earlier in the week.

Stephen Innes at SPI Asset Management said: “No central bankers worth their weight would put inflation-fighting credentials on the line and import higher energy inflation via a weaker currency.”

He added that “in what is a highly ominous signal for stock market investors, given the broader index’s sensitivity to rising bond yields… the global race to hike rates is nowhere near the finishing line”. 

In early trade, Tokyo, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta were all in the red, though Hong Kong and Shanghai were slightly higher after steep losses on Thursday.

– Key figures at around 0230 GMT –

Tokyo – Nikkei 225: DOWN 2.2 percent at 25,858.50 (break)

Hong Kong – Hang Seng Index: UP 1.0 percent at 21,063.11

Shanghai – Composite: UP 0.5 percent at 3,300.72

Dollar/yen: UP at 133.37 yen from 132.14 yen late Thursday

Euro/dollar: DOWN at $1.0532 from $1.0550

Pound/dollar: DOWN at $1.2320 from $1.2350

Euro/pound: UP at 85.48 pence from 85.40 pence

West Texas Intermediate: DOWN 0.5 percent at $116.96

Brent North Sea crude: DOWN 0.5 percent at $119.24 per barrel

New York – Dow: DOWN 2.4 percent at 29,927.07 (close)

London – FTSE 100: DOWN 3.1 percent at 7,044.98 (close)

— Bloomberg News contributed to this story —

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