Another day of pressure for markets in Asia and Australia – Wall Street tanked for the second session in three and tanked badly on Tuesday, not helped by the loss of confidence in Elon Musk and his $US44 billion Twitter adventure that saw over $US120 billion wiped from the value of Tesla shares in a single session.
The selloff in China and that country’s deepening battle to control Covid didn’t help either nor did spotty March quarter earnings reports and continuing fears about the US Federal Reserve monetary policy tightening next week.
Microsoft reported solid results after the bell and the shares rose, reversing the loss in trading and Alphabet (Google) shares fell in trading and in afterhours dealing despite lifting revenue and ad income from a year ago. Weak revenue figures from You Tube was a concern for analysts.
Oil and other commodities again sold off – gold rose back over $US1,900 an ounce and oil bounced as traders took to heart yet another assurance from the country’s central bank that it and the government will stimulate the economy.
That has now been promised at least five times since Mid-March and the economy has slid and slid as the impact of lockdowns across a third of the country and in the biggest city of Shanghai have strangled consumer demand and activity.
Weakness here in Australia and in Europe kicked Wall Street lower and kept it there and the sell-off in Tesla shares – more than 45 million were traded – added to the growing negative sentiment.
The Nasdaq Composite fell further into bear market territory, losing 3.95% and hitting a fresh 52-week low. The index is now 23% off its high. The Dow shed 809.28 points, or 2.4%. The S&P 500 lost 2.8%.
So far in April, the S&P 500 is down 7.8%, the Nasdaq lost 12.2%, and the Dow has declined 4.2%.
The ASX 200 was weaker and is now down 1.7% year to date and will add to that loss for another session on Wednesday, especially with the March quarter Consumer price Index being issued.
But while our inflation will be watched closely, the big influence in the region (and spreading into other areas) is the health of the Chinese economy and population as the battle to control Covid intensifies.
Tuesday saw a massive expansion of Covid testing in Beijing from 3.5 million people to the more than 20 million population of the entire city.
That battered the country’s stockmarkets on Tuesday into a second day of setting new two-year lows.
The expansion of the testing in the country’s capital came as testing continued in the major business capital, Shanghai, to little avail.
The Chinese capital began testing the residents of its most populous district, Chaoyang (pop. 3.5 million), on Monday. By the end of the day, even though only a fraction of the results had come out, the city decided to conduct tests on 10 other districts and one economic development zone by Saturday.
The Chinese capital reported 33 new locally transmitted cases for 25 April, the city’s health authority said on Tuesday, of which 32 were symptomatic and one was asymptomatic. That was slightly higher than 19 community infections reported a day earlier.
The expansion of testing is based on close to 80 infections found since last Friday, Unlike Shanghai the Beijing testing is showing more symptomatic than asymptomatic cases, which should be a big concern.
Shanghai waited a month until case numbers hit around 1,000 a day – they escalated quickly to more than 20,000 a day as Chinese authorities admitted to finding more asymptomatic than symptomatic cases of Covid Omicron.
The Shanghai and Shenzhen markets are now down 20% this year or more while the key CSI 300 index (which includes the biggest companies from both markets) is off 23% so far in 2022.
The Chinese markets are technically in a correction – a fall of 20% from their most recent peaks – at the start of January. They are now at levels last seen in April-May of 2020 in the first wave of the pandemic.
The falls came despite a cut in the foreign exchange reserve ration banks have to hold to 8% from 9% – it was an attempt to support the tumbling value of the yuan – now down more than 3% against the US dollar in April alone, according to analysts. The yuan is now at a 12-month low against the dollar.
The people’s Bank of China said the forex ratio cut was aimed at slowing the fall in the value of the yuan against the greenback – its a growing concern that it will boost inflation (but make Chinese exports more competitive) but is a major embarrassment for the government as its a signal of the growing unease about the way the latest Covid waves in Shanghai and other cities and towns is being handled.
