China Reaffirms Commitment to Zero-Covid Policy

  • Market Overview

US markets traded lower on Friday after China reaffirmed its commitment to its zero-Covid policy, while market participants exercised caution ahead of the US midterm elections scheduled for Tuesday, and a key inflation report to be released on Thursday which could offer clues into the Federal Reserve’s (Fed) monetary policy trajectory. Adding to poor market sentiment was a mixed jobs report which showed that the US economy added more jobs than what was anticipated in October 2022, but unemployment rose more than expected to 3.70%. For the week, all three major US indices ended lower with the Dow losing over 1%, while S&P 500 and Nasdaq fell 3.40% and 5.70%, respectively.

While markets in China pared losses amid mounting pressure on the government to dial back its stringent Covid prevention measures, European markets rallied on Friday after the latest US unemployment data lifted hopes of an eventual policy pivot by the Fed despite Jerome Powell’s hawkish commentary on Wednesday. The regional STOXX 600 rose nearly 2% for the day, with basic resources leading the gains. An upbeat corporate earnings season, combined with optimism that key central banks will gradually scrap tighter monetary policy saw the benchmark index log a weekly gain of 1.50%. The FTSE/JSE All Share Index (ALSI) jumped nearly 5% on Friday, supported by the same market drivers. For the week, the local bourse advanced nearly 3%.

In commodity markets, growing odds that global oil supply will remain tight continued to impact sentiment on Friday, with Brent crude up almost 4% to above $98 per barrel. However, Trading Economics reported that gains were limited by “persistent concerns about a potential recession-driven demand downturn, triggered by an aggressive tightening from major central banks.” Bullion jumped just shy of 2%, trading at $1 670 an ounce at the close of local business as market participants continued to digest the global monetary policy outlook.

PSG Wealth Daily Investment Update, 7 November 2022

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