It’s still too early to tell where things will go as protests against COVID restrictions spread across China. Things escalated over the weekend after a deadly fire killed 10 people in Xinjiang’s capital of Urumqi, with outrage over the incident going viral on social media. People blamed COVID controls for the incident, with reports suggesting that the severe measures obstructed escape and rescue efforts. Authorities denied the allegations, but the demonstrations had already spread across Beijing, Wuhan and Shanghai, where blank sheets of white paper were raised as a symbol of defiance.
Market movement: The Hang Seng Index opened down more than 4% in a knee-jerk reaction before paring losses to trade 1.5% lower, while the Shanghai Composite settled down 0.8%. The bigger move was seen in oil markets, with crude futures (CL1:COM) sliding 3.6% to $73.60 per barrel. As case numbers continue to hit record highs – with over 40,000 new infections recorded on Monday – China’s central bank cut its reserve requirement ratio by 25 basis points, freeing up around $70B in liquidity to support the economy.
Widespread demonstrations are a rarity in mainland China, but protests have escalated amid three years of COVID restrictions that have battered travel, incomes and morale. Last week, unrest spread at the world’s biggest iPhone plant in Zhengzhou, with workers upset about bonuses and conditions in the locked-down factory. Residents in the southern manufacturing hub of Guangzhou also protested restrictions by breaking through metal barriers and demanding an end to lockdowns. To be clear, China has dealt with much larger demonstrations in recent years, like the pro-democracy protests in Hong Kong that brought millions of people on to the streets in 2019.
Go deeper: People’s Daily, the official mouthpiece of the Chinese Communist Party, ran a front page op-ed on Monday that indicated the current thinking on COVID policy. It called for controls that are more targeted – like the recently announced “20 measures” – as well as “improving the effectiveness of anti-epidemic work.” The zero-COVID stance has already had serious implications for the economy, with China’s GDP expanding only 3% at the end of the third quarter, well below the official target of around 5.5% announced in March. (17 comments)
Data released following the Black Friday holiday indicates consumers’ appetite to spend was not curbed amid elevated inflation. While traffic to malls may have been thinner than expected, web traffic remained robust. According to Adobe Analytics, shoppers in the U.S. spent a record $9.12B on Black Friday sales online.
Snapshot: The record figure came amid deep discounting among many major retailers, which are working through bloated inventory levels. The 2.3% jump in online sales from the prior year more than doubled the expectation for the analytics provider. Additionally, Cyber Monday sales are expected to exceed the performance on Black Friday, with sales slated to top $11.2B and adding to strength in the e-commerce industry.
“With holiday promotions kicking off long before the Thanksgiving weekend, consumers have been shopping strategically for the season’s best deals,” explained Michelle Meyer, U.S. Chief Economist of the Mastercard Economics Institute. “Retailers delivered on Black Friday with deals that enticed consumers to fill their carts despite the inflationary environment.”
Outlook: Adobe expects Cyber Week – the five days from Thanksgiving Day through Cyber Monday – to generate a total of $34.8B in spending online, up 3% compared to 2021. Flexible payment plans have also been used by many shoppers as they deal with high prices and inflation. “Buy Now Pay Later” payments soared by 78% compared with the past week, while “Buy Now Pay Later” revenue is 81% higher for the same period. (121 comments)
Chinese COVID restrictions and the energy demand outlook for the world’s largest crude importer aren’t the only things weighing on oil prices this morning. EU members have been locked in talks over how strict the G7-led price cap on Russian crude should be, with negotiations set to resume later today. The U.S. also just granted oil major Chevron (CVX) a license to resume “limited” oil production in Venezuela following sanctions that stopped all drilling activities almost three years ago.
Bigger picture: The reprieve came after Venezuela President Maduro’s government and a coalition of political opponents agreed to implement a humanitarian relief program and continue talks in Mexico City on holding free and fair elections. The Biden administration has also been looking for alternative energy sources amid Russia’s war in Ukraine, with the EU set to ban Russian oil imports on Dec. 5 and as elevated prices pose a big problem for global inflation. Venezuela has the world’s largest proven oil reserves and used to pump over 3M barrels per day before mismanagement and hefty sanctions sent production well below 1M bpd.
Investors don’t seem to be excited (yet). No new drilling is authorized, though Chevron will be able to repair and perform maintenance of oil fields, and it will be allowed to resume crude oil exports from the country. Over the next six months, Chevron might only increase output by some 20,000 to 30,000 barrels a day, which won’t make too much of a difference to the global market. It’ll also need to spend heavily to attract talent and get things running again, all while under the threat of its license being revoked due to the actions of the Maduro regime. CVX -2% premarket.
Statement: “The Office of Foreign Assets Control’s decision brings added transparency to the Venezuelan oil sector,” Chevron declared. “We are determined to remain a constructive presence in the country and to continue supporting social investment programs aimed at providing humanitarian relief.” (79 comments)
Casino stocks have their chips on the table this morning, with the major players notching broad gains as a major overhang cleared for the sector. The government in Macau has tentatively renewed the casino licenses of MGM Resorts (MGM), Las Vegas Sands (LVS) and Wynn Resorts (WYNN), as well as Melco Resorts & Entertainment (MLCO), SJM Holdings (OTCPK:SJMHF) and Galaxy Entertainment (OTCPK:GXYEF). Only a bid from Genting Group of Malaysia (OTCPK:GEBHF) was rejected.
Backdrop: Sweeping new laws were passed this year that cracked down on casino operations and their role in soliciting high-rollers from mainland China (where gambling is illegal). Prompting the legislation were fears over capital outflow, leading to much uncertainty for existing operators that were already slammed by a drought of tourism. China’s strict COVID measures haven’t made things any easier, with Macau year-to-date gross gaming revenue down 50.5% to 35.7B patacas through October 31.
“The operation and development of our gaming industry has come to a certain scale today, but there are also some problems,” noted Secretary for Administration and Justice Cheong Weng Chon. “For example, the source of our tourists is too concentrated. It’s not healthy.”
Reshaping the area: The awarding of the licenses comes with a commitment from casino operators to help diversify the Macau economy by investing in non-gambling attractions like theme parks, music and sports. As of now, 80% of the local government’s income comes from gambling. The new licenses are expected to take effect at the beginning of 2023 (subject to final negotiations) and run for a maximum term of 10 years. (12 comments)
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