Morning Bid: China crisis brewing

Nov 28 (Reuters) – A look at the day ahead in Asian markets by Jamie McGeever.

Purchasing Managers’ Index (PMI) data will be the main economic driver for Asian markets this week, but the tone will be set by the increasingly tense political situation in China.

Thousands of people are taking to the streets in several cities across the country in an unprecedented protest against the government’s strict COVID restrictions following a deadly apartment fire in Urumqi in the country’s far west.

The wave of civil disobedience and clashes between protesters and police comes amid growing frustration over President Xi Jinping’s signature zero-Covid policy. China has reported a record number of new COVID cases for four consecutive days.

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“Down with the Chinese Communist Party, down with Xi Jinping,” a crowd in Shanghai shouted in the early hours of Sunday, according to witnesses and videos posted on social media.

It’s safe to say that doesn’t happen very often, and the world is watching intently to see how Beijing handles the brewing crisis.

From an immediate market perspective, the COVID surge and nationwide unrest are dampening any hope that China is about to reopen its economy. It doesn’t look like the restrictions will be lifted anytime soon, and growth will continue to suffer.

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In that vein, PMI figures on Wednesday are expected to show that Chinese factory and service sector activity contracted again in November, another sign that Beijing will maintain its loose monetary policy stance.

If so, the yuan is likely to come under renewed pressure, especially after the central bank said on Friday it would reduce the amount of cash banks must hold as reserves, injecting about $70 billion of liquidity into the struggling economy.

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Three key developments that could give more direction to markets on Monday:

– Australia Retail Sales (October)

– Fed’s Williams speaks

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– Lagarde of the ECB speaks

Reporting by Jamie McGeever in Orlando, Fla.; Editing by Mark Porter

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed under the Trust Principles to integrity, independence and freedom from bias.

Jamie McGeever

Thomson Reuters

Jamie McGeever has been a financial journalist since 1998, reporting from Brazil, Spain, New York, London, and now back in the US. Focus on economics, central banks, policy makers and global markets – especially FX and fixed income. Follow me on Twitter: @ReutersJamie

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