When Russia Invades.
Martin Luther King Holiday Edition.
1. Omicron has breached the political, financial and technology centers of China for the first time, putting pressure on the country’s response to the more transmissible variant as it awaits the Winter Olympics starting in less than three weeks. China has detected locally-transmitted omicron infections in the capital Beijing, the financial center Shanghai, and Guangdong, where the southern technology center of Shenzhen is located, which together account for one-fifth of the country’s gross domestic product. The highly mutated strain has been detected in one out of every five provinces, while 14 of them have reported imported cases. (Source: bloomberg.com)
2. Fresh turmoil rocked Chinese property bonds earlier today as investors fretted over the true scale of the industry’s hidden debts. A Logan Group Co. note due 2023 sank 11.5 cents to a record low 65.5 cents after Debtwire reported the developer could be on the hook for $812 million of guarantees on outstanding obligations due through 2023. The firm, whose bonds traded at close to par as recently as last month, denied both the report and market speculation the company has privately sold debt. Mounting concerns about the transparency of China’s better developers is forcing bondholders to question the liquidity of firms whose finances appear sound. More debt would mean more creditors, some of whom could demand early repayment. There’s also the risk that hidden liabilities like trust loans, private bonds or high-yield consumer products receive preferential treatment over money owed to offshore creditors. China Evergrande Group, Kaisa Group Holdings Ltd. and Shimao Group Holdings Ltd. have all faced such obligations. (Source: bloomberg.com)
3. China’s central bank cut its key interest rate for the first time in almost two years to help bolster an economy that’s lost momentum because of a property slump and repeated virus outbreaks. In a stark policy divergence with other major economies, the People’s Bank of China lowered the rate at which it provides one-year loans to banks by 10 basis points -- the first reduction since April 2020. While inflation is the dominant concern for central bankers in the U.S. and Europe, China’s relatively stable prices mean policy makers have shifted to boosting growth. Official data Monday showed gross domestic product rose 4% last quarter from a year earlier, the weakest since early 2020. (Source: bloomberg.com)
4. American companies are bracing for another round of potentially debilitating supply chain disruptions as China, home to about a third of global manufacturing, imposes sweeping lockdowns in an attempt to keep the Omicron variant at bay. The measures have already confined tens of millions of people to their homes in several Chinese cities and contributed to a suspension of connecting flights through Hong Kong from much of the world for the next month. The country’s zero-tolerance policy has manufacturers — already on edge from spending the past two years dealing with crippling supply chain woes — worried about another round of shutdowns at Chinese factories and ports. Additional disruptions to the global supply chain would come at a particularly fraught moment for companies, which are struggling with rising prices for raw materials and shipping along with extended delivery times and worker shortages. (Source: nytimes.com)