No More Zero-Covid?

Weekly Briefs
12 Dec 2022
7 min read
No More Zero-Covid?

Last week was a relatively quiet one before the flurry of central bank interest rate decisions happening this week. But that didn’t stop several top executives at Wall Street’s biggest banks from coming out with gloomy economic warnings last week. Their pessimism echoes what we’re seeing in the bond market, with a key measure of yield curve inversion reaching its widest point since 1981 last week – a harbinger of a looming economic recession. Elsewhere, the EU has managed to cut its gas demand by a quarter in November, according to new data out last week, while stablecoin firm Circle ditched its plans to go public amid all the turmoil in the crypto sector. Finally, Chinese stocks surged after the government eased some Coronavirus restrictions, fueling investor hopes that authorities may drop the country’s economically disruptive zero-Covid policy more quickly than expected.


Several top executives at Wall Street’s biggest banks came out with gloomy economic warnings last week. Goldman Sachs’s David Solomon warned about pay and job cuts, citing “some bumpy times ahead.” Bank of America is slowing hiring as fewer employees leave ahead of a possible economic contraction, chief Brian Moynihan said. Morgan Stanley is embarking on a fresh round of job cuts, while JPMorgan Chase’s Jamie Dimon told CNBC a “mild to hard recession” may hit next year. Finally, Morgan Stanley Wealth Management’s Lisa Shalett said some of the biggest companies may see their earnings hit far more than expected next year as economic growth slows and inflation erodes consumers’ purchasing power.

Analyst price-target downgrades have fallen to their lowest level since January. Put differently, analysts appear to believe that the worst is over i.e. individual stocks won't fall much further. But they could be proved wrong should companies see their earnings hit far more than expected next year. Source: Bloomberg

The bond market seems to agree with Wall Street’s gloomy economic predictions, with the gap between short- and long-term Treasury yields reaching its widest point since 1981 last week. The pattern, known as a yield curve “inversion”, has preceded every US economic downturn of the past 50 years. That sends a clear signal: investors are expecting the Fed’s ongoing interest rate increases to tip the economy into recession.

The gap between short- and long-term Treasury yields reached its widest point since 1981 last week. Source: FT

In fact, in a December survey conducted by the Initiative on Global Markets and the Financial Times, 85% of economists said they expected the National Bureau of Economic Research (the official decider of recession in the US) to declare one by next year. It’s worth noting that while an inverted yield curve is a pretty good recession signal, it doesn’t provide much information regarding a potential downturn’s depth or length – those are up for debate.

85% of economists polled project a recession by next year. Source: FT


Chinese stocks surged at the start of the week after some Coronavirus restrictions were eased over the weekend, fueling investor hopes that Chinese authorities may drop the country’s economically disruptive zero-Covid policy more quickly than expected. Shanghai joined Beijing, Shenzhen, Guangzhou, Zhengzhou, and other Chinese cities in no longer requiring PCR results to access public transport and many shared spaces.

Restrictions were further eased on Wednesday, including allowing some people to quarantine at home (rather than in centralized camps), accelerating vaccination among the elderly, and forbidding local officials to designate large areas as high-risk, which had led to lockdown-like curbs in entire housing compounds and other places. There is one issue though: little time has been spent putting in place mitigation measures to deal with the resulting explosion in cases, which could total 5.6 million a day at the peak, according to some estimates.

China is easing Covid controls even as cases surge. Source: Google, Our World In Data

The loosening of restrictions – alongside a stabilization of China’s property sector and signs that a crackdown on the country’s tech firms may be wrapping up – is turning Wall Street bullish again on Chinese stocks. Morgan Stanley, for example, upgraded the country’s equities to overweight last week, lifting them from an equal-weight position the investment bank had held since January 2021. That comes after a more than 30% rebound in the MSCI China Index from October’s bottom.

Reopening hopes have lifted Chinese stocks by more than 30% from their October bottom. Source: Bloomberg


The EU has managed to cut its gas demand by a quarter in November, according to new data out on Monday from commodity analytics company ICIS. Gas demand in the EU was 24% below the five-year average last month. The situation has been helped by an unseasonably warm autumn, although temperatures have dropped closer to normal levels in the past two weeks. The drop in demand meant gas storage facilities in the bloc were at 95% capacity in mid-November – close to an all-time high. But colder weather in recent weeks has increased demand and storage facilities are now at about 93% capacity.

Gas demand in Europe has fallen rapidly. In Germany and Italy, the EU’s two biggest gas-consuming countries, demand fell 23% and 21% respectively in November. Source: ICIS, FT

European countries have been trying to reduce their reliance on Russian natural gas by finding alternative sources and implementing measures to curb demand. The bloc has also imposed sweeping new restrictions on Russian oil to limit its use of that energy source too. The EU’s restrictions on seaborne Russian oil imports, for example, came into effect on Monday. The move effectively bans the import of crude oil produced in Russia and transported by sea. Pipeline flows are unaffected, although Germany and Poland both said they would stop such imports by the end of 2022.


Stablecoin firm Circle ditched its plans to go public amid all the turmoil in the crypto sector after FTX’s shock collapse. Circle, the issuer of the world’s second-biggest stablecoin (USDC), announced last week that it’s scrapping its planned merger with special purpose acquisition company Concord Acquisition (chaired by former Barclays chief executive Bob Diamond). The deal, which was initially forged during the crypto bull market in July 2021, was once valued as high as $9 billion. Circle still plans on becoming a public company in the future, which would allow investors to gain exposure to the fast-growing stablecoin industry. The firm posted $43 million in net income last quarter on revenue and reserve interest income of $274 million.

At its peak, USDC's market cap exceeded $50 billion. It currently stands at around $43 billion. Source: CoinGecko

This week

Markets are naturally quieting down as the Christmas holidays draw nearer. The third-quarter earnings season is pretty much all wrapped up but the economic calendar is pretty busy.

  • Monday: UK GDP (for October)
  • Tuesday: US inflation and the UK labor market report (unemployment rate, average hourly earnings, etc)
  • Wednesday: UK inflation and the Fed’s interest rate decision (markets are pricing in a 50 basis point hike)
  • Thursday: Chinese and US retail sales, and the Bank of England’s and European Central Bank’s interest rate decisions (markets are pricing in 50 basis point hikes for both)
  • Friday: PMIs (Japan, UK, eurozone, US) and UK retail sales
General Disclaimer
The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.

Access the Full
Research for

Sign in or register new account in order to get full access to Darqube Research. Access now it’s free!
Distributed by Darqube Ltd, United Kingdom.
All images and logos are trademarks of their respective owners.

Sign In to Darqube

or sign in with email
Forgot Password?
Don't have an account? Sign Up