Commodities, shares tank on Beijing lockdown fears

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Economists warned China appeared to be struggling to contain a string of clusters, each potentially worse than the initial 2020 outbreak in Wuhan, while factory bosses said they could no longer operate their businesses because truck drivers were unable to move around the country without being threatened with quarantine.

“Logistics are not working. I can’t get inputs and I can’t export any outputs even if we could produce them. A cash crunch is coming,” one factory owner in Dalian in China’s north-east told The Australian Financial Review on Monday. He did not want his name published, fearing upsetting the local authorities.

“A big problem is the drivers. They are not willing to risk a red code or being locked down,” he said, referring to a mandatory smartphone code thath defines whether an individual has been potentially exposed to infection.

Nomura on Monday slashed its second-quarter GDP forecast for China to growth of 1.8 per cent from 3.4 per cent previously. It warned the outbreaks were now affecting China’s financial and logistical hubs with no sign of a resolution while the government sticks with a zero-case policy.

“Without the ending in sight, Chinese households and private sector corporates may reduce their investment in their homes and capital goods. With other countries shifting to full reopening, China’s export growth is set to slow even without lockdowns,” Nomura chief China economist Ting Lu said.

Rio Tinto shares traded in London fell 4.9 per cent to £53.84 at the open; Australian equities will return to trading on Tuesday following Anzac Day. Iron ore is Australia’s biggest export and China its most important customer.

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Wall Street futures pointed to another session of losses, with US oil futures falling 3.9 per cent to $US98.11 a barrel. Prices for top-quality hard coking coal from Queensland slumped by almost 12 per cent to $US449 per tonne on Friday night, according to Platts.

Copper and aluminium prices also slumped to their lowest since March 16. Additional pressure has come on metals prices after industrials such as Alcoa warned that the Ukraine war and associated commodity price boom had created demand destruction, particularly among car makers.

Block by block

There was panic buying in Beijing on Monday, according to some Chinese media reports, as the government sealed off dozens of residential compounds in the capital after more than 40 infections were reported at the weekend. Residents in some districts have been told they will be tested three times this week.

Cases continued to rise in Shanghai where the government is now reporting an increasing number of deaths after going weeks without any official fatalities. Authorities on Monday reported 51 new deaths in the city.

Yields on US 10-year Treasuries retreated 4 basis points to 2.86 per cent.

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On Friday, the Dow Jones Index of 30 leading US companies tumbled 981.4 points, or 2.8 per cent, to post its worst session since October 2020. All three major US benchmarks fell more than 2.5 per cent in a move attributed to Federal Reserve chairman Jerome Powell signalling US interest rates will rise 0.5 per cent in May.

In Japan, the benchmark Nikkei 225 Index traded 1.9 per cent lower.

Cost of living

Reuters’ consensus forecasts indicate the consumer price index will increase 1.7 per cent quarter-on-quarter and 4.6 per cent year-on-year in Australia on Wednesday.

“At the May 3 meeting we expect the [Reserve Bank] will adopt a clear tightening bias in anticipation of a move in June,” said Westpac’s chief economist, Bill Evans.

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ANZ Bank forecasts trimmed mean inflation – excluding the surging cost of food and petrol – to reach 1.1 per cent quarter-on-quarter and 3.4 per cent year-on-year. ANZ forecasts headline inflation to reach 1.8 per cent quarter-on-quarter to take annual price inflation to 4.7 per cent, its highest level since the third quarter of 2008.

Earnings ahead

In the US about one-third of companies in the S&P 500 are scheduled to deliver earnings over the week ahead. Investors will look to tech giants Amazon, Apple, Meta, Google-parent Alphabet and Microsoft to deliver profit growth and allay fears over the impact of rising interest rates on valuations.

On the ASX, companies reporting quarterlies include Coles, Fortescue Metals, Ampol, Newcrest, Origin Energy and healthcare giant ResMed.

Australia’s benchmark S&P/ASX 200 index has outperformed global markets to fall just 1.5 per cent this year thanks to strong gains from the miners and banks, helping offset a 23 per cent fall for Australia’s S&P All Tech Index. Commodity miners have delivered huge gains for investors; Whitehaven Coal is up 79.9 per cent year-to-date, with BHP Group adding 14.4 per cent.

Elsewhere, on Thursday in the US gross domestic product growth is expected to climb 1 per cent quarter-on-quarter. The eurozone is also set to provide more data on the economic impact of the war in Ukraine. On Friday analysts forecast the economic block’s first-quarter gross domestic product growth to reach just 0.3 per cent and price inflation to finish at 2.4 per cent for April.