The yuan fell first and now copper has given up its earlier gains on the session. Oil prices have also sold off from earlier highs. Will indices follow next? The losses come for some of these markets as concerns intensify over China.
So far, we have seen community lockdowns as Covid cases hit record highs. The situation is escalating, and people don’t want to be caught offside with the weekend fast approaching. At the pace things are escalating in China, I would expect to see tighter restrictions. Clearly, this could hurt economic activity and that’s why we are seeing some markets react they way they have.
The yuan’s sell-off was also partly driven by news the PBOC has decided to cut banks' reserve requirement ratio by 25 bps.
But do watch other markets, in particular oil and copper, as the world’s second largest may be forced to further tighten its Covid curbs. Cases have risen to levels last seen in April, when Shanghai was put in a stringent lockdown. Although China relaxed some restrictions, its zero covid policy means the threat of more growth-choking lockdowns are there. This is going to hold back the yuan and potentially risk assets across the board.
Copper’s bearish reversal has helped to form an (uncompleted) inverted hammer on the daily chart, which comes after a few days of relative strength. The fact that last week saw the rally come to a complete reversal when the sellers defended the 200-day average and key resistance near 3.9300 to 4.000, the longer-term path of least resistance remains to the downside. So, watch out below.
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