European Wrap – Beijing Setback Stalls Rebound

Stocks Hold onto Previous Gains Despite New COVID Cases

It’s been a bit of a mixed day of trade in Europe on Wednesday, with stocks coming off their earlier highs but generally holding on to recent gains.

This is despite worrying developments in Beijing which is quickly going into lockdown as the number of new cases continues to rise. The numbers were seeing are still small which offers some hope that the outbreak can be contained but they are rising rapidly. Investors are broadly turning a blind eye for now but they’ve done so before and it didn’t work out too well.

Of course, the situation is dramatically different now. Travel restrictions are in place around the world, governments are better prepared and know more about what they’re dealing with and people are more hygiene focused. That won’t stop the spread but it should reduce it.

That said, Beijing is still heavily populated and of huge economic importance to China. If the number of cases continues to accelerate, it would be a huge setback for the country and the region that relies so heavily on it. There’s no reason why we won’t see similar outbreaks in other major cities around the world in the month’s ahead.

UK inflation data unlikely to impact tomorrow’s BoE outcome

The UK inflation data shouldn’t come as too great a surprise under the circumstances and will probably continue to fluctuate for the rest of the year. Between the plunge in oil prices and retailers inevitably being forced into big discounting to offload seasonal stock and draw people back into the shops, disinflationary pressures will surely persist in the near-term.

Whether that tempts the Bank of England into more easing is another thing. The economic factor is surely a far more important factor ahead of tomorrow’s interest rate decision. More QE looks highly likely tomorrow, with the consensus view being another £100 billion initially. The inflation data maybe adds to the case but I’m not sure it will influence the outcome in any way.

Beijing lockdown drags on oil prices

Oil is coming off a little today as the increasing lockdown in Beijing weighs on crude prices. It serves as a timely reminder of the challenges we’ll continue to face as cities and countries around the world deal with fresh outbreaks. Oil prices have already factored in the huge demand destruction we’ve already seen but fresh outbreaks pose more problems.

Gold lower as USD rebounds on strong retail sales

Gold is coming under a little more pressure today, dragged down by the rebound in the dollar after the US retail sector rebounded strongly last month. A bounce was expected but the 17.7% increase came as quite a shock and, coming on top of the knockout jobs report, suggests the economy is responding well despite such a severe setback. With the dollar coming back into favour, it may weigh on gold in the near-term.

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