China worries resurface
China just can’t catch a break. After last week’s big rally in oversold stocks that lifted the major indices sharply higher, the selling pressure has resumed again at the start of this week after officials denied reports that the country was dropping its Covid Zero policy. So far, the selling has just been contained inside China, but with the crypto selling also gathering momentum, this could hurt the wider financial markets. Crude oil may also come under pressure amid worries about demand in the wake of fresh COVID outbreaks.
So, do watch the European and US indices closely, as the selling pressure could well resume again. For now, it is all about Chinese markets and the China A50 index has turned lower right from the lower end of the key resistance range between 12255 and 12387:
Cases have surged in the manufacturing hub of Guangzhou, as well as a number of other Chinese cities. China has re-affirmed its strict zero Covid policy, so there may well be further growth-chocking lockdowns to come. Indeed, this has been among the reasons why China’s economic growth has been so weak this year and it is precisely what investors are worried about again.
In addition, the sell-off in cryptocurrencies has gotten worse. Today, Bitcoin dropped to a new low for the year. Cryptos have sold off sharply over the past couple of days on renewed liquidity fears in the industry. Troubled crypto exchange, FTX, is in talks to be rescued by Binance, after it halted withdrawals. It is definitely something to keep an eye on, as it may be an additional factor impacting risk appetite across the financial markets.
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