Chinese COVID Lockdowns Spook Market
August 3, 2021
Two words spooked the market and lead to yesterday’s selloff: China and lockdowns. China has confined millions to stay in their homes as Delta variant cases increase. Lockdowns in China are not positive for its economy or the global economy. Energy demand may be affected and this is what the market feared yesterday. So, now there is a battle going on between more vaccinations and the ideal that economies are continuing their recovery out of the pandemic against rising COVID cases and new restrictions.
China’s factory orders also were reported to have slowed in July for the first time in over a year and this news also helped fuel yesterday’s pullback.
Also adding selling pressure to yesterday is the fact that it is now August and for OPEC+ a new month means lessening of their quotas. This will allow more barrels to come into the market. OPEC+ can raise their crude oil output by 400,000 BPD.
The market is trying to bounce here in early trading so will this current selloff be a repeat of what we saw ten days ago when the OPEC+ news of more barrels first hit, and we sold off hard but recovered and went back to the upper limits of the recent trading range? We will have to wait and see. There are still plenty who see the strong recovery continuing and with more stimulus money still potentially fueling the rebound. The market is getting late in the season that historically provides a corrective pullback before a late summer early fall rally. Will these seasonal impacts hold true this year or are there just too many things to support a continued rally.
The US ISM Manufacturing Index reported a reading of 59.5 for July, which was below the range expected of 60.0 to 61.5. The June reading was 60.6. The manufacturing index fell unexpectedly driven by difficulties of finding employees for manufacturing and shortages of raw materials needed due to the pandemic.
A Reuters survey showed that OPEC+ oil output rose in July to the highest level since April 2020.