Impact of employment statistics and China's Zero-COVID measures on Japanese stocks
Hello, this is Shimoyama.
November passes quickly,
and it ends this Wednesday.
Speaking of the first Friday of every month
is the time when
it has an impact on the subsequent movements of the stock market
the United States
employment data releases
occur.
The release of employment data
has an impact on the stock market,
we have been telling you almost every month,
and this time as well, in the December FOMC
we will look for clues about the direction of policy rates.
Also, recently, the world economy
and the Japanese stock market
are facing issues that could have a big impact
that cannot be ignored.
One such event is
the impact of China’s zero-COVID policy
on productivity
on the world economy.
Therefore this time
we will explain the key points of employment data
and the impact of China’s zero-COVID measures on Japanese stocks.
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Key points of the employment data
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The US employment statistics are
consistently regarded as important by the Fed Chair Powell
Therefore, the employment data
are indicators that are watched by the market for the following weeks
to gauge the stock market’s direction,
by market participants as well.
The employment data are used to judge the strength of the economy;
an increase in employment and a low unemployment rate
signal a robust economy.
Additionally, the policy rate is
a tool to control the economy;
when the economy is overheating,
rates are raised,
and when the economy is weak,
rates are lowered to stimulate growth.
In other words, when policy rates rise
funds tend to flow into bonds and away from stocks,
and when policy rates fall
funds tend to flow into stocks.
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What is China’s Zero-COVID Policy?
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The “Zero-COVID policy” in China
is a policy that aims to completely prevent the spread of infection of the novel coronavirus and
to prevent any COVID-19 cases from occurring.
In the mid-2020s,
domestically the number of new infections was almost zero,
but since last month the infections have been expanding again,
and by the instruction of the Chinese Communist Party
many cities have seen
lockdowns and
daily nucleic acid tests are being conducted.
Today, around the world, people are adopting new lifestyles
to coexist with the virus,
a “With Corona” approach is spreading, but
in China the Zero-COVID policy is still being pursued,
and its impact is felt in the global economy.
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Impact of China’s Zero-COVID on the stock market
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Generally, as China accelerates zero-COVID measures,
factory operations domestically slow down,
and companies that import products from China face shortages of raw materials and parts,
causing a significant blow.
Furthermore, due to decreased domestic demand in China,
companies exporting products to China may see lower sales,
and the performance of firms with factories in China or many Chinese customers
is adversely affected.
In addition,
the policy leads to a sharp decline in inbound Chinese tourism,
affecting the “Inbound” (visiting foreign tourists) stocks as well.
However, conversely, if Zero-COVID is eased
those stocks are likely to benefit especially.
When expectations rise for easing Zero-COVID policy,
Chinese-related stocks are often bought back globally.
Domestically, on November 8 in the Tokyo market,
SoftBank Group rose by 5%,
and investors were optimistic that Chinese equipment investments would not fall as much,
Koｍatsu rose 8.2%,
Yokowai Denki rose 4.5%,
showing broad gains in China-related manufacturing stocks.
Additionally,
with expectations that Chinese demand would stabilize, materials stocks such as iron and steel rose as well.
When Zero-COVID eases, revisiting these stocks may be worthwhile.
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Summary
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This week’s employment data is drawing attention as it may help determine the year’s final FOMC move.
The key point is
at the next FOMC meeting, how high December’s policy rate will be
is largely anticipated.
If market expectations align and it is a 50 basis point increase,
that would be a tailwind for stocks,
whereas a 75 basis point hike again could be a headwind.
Also, as we are entering the holiday season,
we should watch liquidity carefully.
We will continue in this newsletter to provide
the latest news and stock market trends.
Thank you for reading until the end today as well.
Shimoze Kyu
＊Disclaimer＊
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but we cannot accept responsibility for any losses arising from the content.