Another Lockdown In China Sparks Supply Disruption Fears
NAGA | Sep 01, 2022 04:31AM ET
China’s fifth largest city is again in lockdown, sending fears trickling throughout the financial markets. Markets are worried the lockdowns in the world’s largest economy may cause further supply disruptions.
As a result, this may put further pressure on inflation, specifically for some goods. However, if China continues to impose lockdowns, oil and gasoline may decline due to the lower level of demand.
h2 Crude Oil - Technical View/h2The price of crude oil has witnessed significant declines for a second consecutive day, declining by 4.77% on Tuesday and by a further 4.12% yesterday.
The price had originally seen strong bullish price movements in the previous two weeks after OPEC members advised they had considered lowering the current output to protect oil prices. However, these price gains have more or less been lost over the past two days.
Chinese lockdowns mainly pressure the price in multiple cities. The latest is in Chengdu where over 20 million citizens are now in lockdown. It should be noted that China has a large influence over oil prices because it is the world’s largest importer.
In addition to this, the price continues to be pressured by the fact that both the European and UK economies are edging closer to recession. The Chinese economy is also showing signs of a slowdown, which may cause a decrease in oil demand. Lastly, the hawkish Federal Reserve has added to the downward trend.
According to the American Petroleum Institute (API) report, US energy reserves rose by 0.593 million barrels instead of the expected reduction of 0.633 million barrels.
h2 NASDAQ - Technical View/h2The price of the NASDAQ saw a strong selloff during this morning’s Asian session, declining by 1.09%. Again, this may result from the latest lockdowns announced over the past 24 hours.
It’s been observed that the level of volatility is significantly higher than that generally seen during the Asian sessions. The price has also formed its third day of consecutive declines, recording a total decline of 10.40% over the past three weeks.
It has been influenced by the more hawkish Fed and will likely see further price drivers at the next Consumer Price Index (CPI) announcements and this Friday’s nonfarm payrolls (NFPs).
Yesterday, the ADP employment data for August was published. The release is considered an estimate ahead of the Federal statistics, which will be released tomorrow afternoon. The value increased by 132,000, which is less than the predicted 288,000 but more than the July figure of 128,000. Overall, the US labor market seems to remain stable.
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Yesterday, the Cleveland Federal Reserve Chairman Ms. Meister advised that interest rates would rise significantly (above 4% in the coming months) before the regulator can ease inflation control measures.
Overall, members of the Federal Reserve across the board have remained hawkish and keep indicating an interest rate higher than 4%. The fear is that this may significantly decrease consumers' and investors' disposable income, resulting in a risk-averse market with low investor confidence.
h2 AUD/USD - Technical View/h2The price of the AUD/USD remains within a longer-term downtrend but traders remain cautious of retracements and support levels. The instrument's price is mainly driven by the US Dollar but is also partially influenced by Australian fundamentals.
Over the past 24 hours, data on the second quarter for completed construction works were published: the indicator fell immediately by 3.8% instead of the expected growth of 0.9%. In addition, house prices across the country have also fallen for the first time in 4 decades, with the strongest decline seen in Sydney, the country’s primary market.
The construction and housing market are under pressure due to a significant cost increase and monetary policy tightening by the Reserve Bank of Australia. However, the hawkish Central Bank has not managed to support the currency due to being overshadowed by the Federal Reserve and a strengthening Dollar.
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