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New lockdowns bring caution

New Covid outbreaks in China are adding to European and US fears about the resurgent virus. On Friday night markets responded with a sharp scramble to safety. Shares and crude oil broke recent winning runs, and bonds rallied as international investors turned to the US dollar.

Chinese authorities locked down more than 20 million people in response to fresh outbreaks in a number of provinces near Beijing. More than 1,000 patients are in hospital, and many regional authorities are calling on citizens to avoid travelling over the coming New Year holiday. The re-emergence in China occurs as many US and European regions experience record daily infection levels. It’s too early to determine if the market moves are a corrective pullback in an ongoing risk rally, or a turning point for vaccine optimism.

The US corporate reporting season is fully underway. Citibank, JP Morgan and Bank of America all delivered stronger than anticipated result, yet all fell hard, led by Citibank’s 6.9% tumble. Bigger names reporting this week include Goldman Sachs, Morgan Stanley, Netflix and Microsoft.

Asia Pacific markets are set to trade cautiously today as traders argue the toss. A US holiday tonight may see lower trading volumes. The release of China GDP (forecast 6.2% yoy), industrial production (f/c 6.9%) and retail sales (f/c 5.5%) today will no doubt influence market action, especially if the expected Q4 pick up in overall activity fails to materialise.