China’s re-opening: what the experts think
● Oily waters
“Oil prices have been on a roller-coaster ride in the past three years”, with Brent crude plunging below $20/barrel in spring 2020 when the pandemic first hit, before spiking to $139 after Russia’s invasion of Ukraine, said Emily Gosden in The Times. Having calmed down somewhat since then, the market is on the rise again. That’s bad news both for motorists and for policymakers attempting to tackle inflation. This week, Brent hit $124 on renewed concerns about supply. The triggers? An agreement by EU leaders to ban more than two-thirds of Russian oil imports; and the prospect of China emerging from two months of Covid shutdowns. In a note this week, Bank of America analysts warned that “a sharp contraction in Russian oil exports could trigger a full-blown oil crisis and push Brent well past $150 per barrel”.
● Shanghai awakes
The re-opening of Shanghai’s factories after Covid shutdowns – manufacturers have got “the green light” to recommence production in June – should spark “a surge” of exports in the coming months, providing welcome relief for beleaguered global supply chains, said The Daily Telegraph. But it may not be enough to restore confidence in battered Chinese stock markets. Even assuming China is really out of the woods with Covid, “a quick return” to normal is unlikely, given the “severe backlog at plants and ports”, said Lex in the FT. Added to that is the possibility of “fresh political risk” as the US and Taiwan deepen economic ties, further straining US-China relations.
● Emerging market stink
The oil situation might be helped if buyers in Asia – particularly in India and China – step in to take more of Russia’s “shunned cargoes”, said Bloomberg. But the US Fed’s aggressive “interest-rate hiking cycle” has got many of these economies on the run, said Robin Wigglesworth on FT.com. Indeed, this has been “the worst start to a year for emerging market assets in almost three decades”. Nearly $36bn has flowed out of EM mutual and exchange-traded bond funds since the start of the year, according to EPFR data, with outflows threatening to worsen liquidity. Bank of America’s head of EM strategy, David Hauner, expects the situation to get worse so long as central banks continue tightening. Buckle up.