Markets Overview

  • ASX SPI 200 futures down 0.1% to 7,263.00
  • Dow Average up 0.4% to 34,347.03
  • Aussie down 0.6% to 0.6723 per US$
  • U.S. 10-year yield fell 1.3bps to 3.6776%
  • Australia 3-year bond yield rose 2.4 bps to 3.27%
  • Australia 10-year bond yield rose 3 bps to 3.57%
  • Gold spot little changed at $1,754.93
  • Brent futures down 2.0% to $83.63/bbl

Economic Events

  • 10:00: (AU) RBA’s Lowe-Senate Testimony
  • 11:00: (AU) Australia to Sell A$300 Million 3% 2047 Bonds
  • 11:30: (AU) Oct. Retail Sales MoM, est. 0.5%, prior 0.6%

The Australian dollar led commodity currencies lower and the greenback strengthened against most major peers as protests in China against Covid curbs cast a shadow over risk sentiment in global markets.

Before it becomes clear how Beijing will respond to the latest surge in discontent, the threat of rising social instability and a government crackdown will likely prompt investors to shift toward haven assets from the dollar to the yen and Treasuries. Rising risks may also weaken demand for stocks, commodities and currencies tied to trade with China, including the Aussie and South African rand.

The dramatic turn of events adds fresh uncertainties to the outlook of the world’s No. 2 economy and its markets, just as some recent loosening of virus controls and sweeping property rescue efforts have helped Chinese stocks stage a remarkable rebound. The protests, triggered by a deadly fire in an apartment block under lockdown in a western city, also threaten to further dilute a moderate, well-anticipated monetary easing step by China’s central bank Friday.

“Sentiment may take a hit as the protests fuel concern over social instability in China and foreign investors may trim exposure to Chinese investment,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd. in Hong Kong. “It appears that the Zero Covid policy is reaching its tipping point. More easing or refinement on the Covid measures will be needed to curb discontent.”

The yuan will likely weaken while haven demand may boost the greenback, Cheung said.

The Aussie slipped as much as 0.5% to 0.6720 US cents by 7:01 a.m. in Sydney. South Africa’s rand weakened 0.5% to 17.1648 per dollar, and the New Zealand dollar dropped 0.4% to 0.6225 US cents. The Bloomberg Dollar Spot Index edged 0.1% higher, snapping three days of declines.

Optimism had re-emerged in Chinese markets since Beijing cut quarantine periods and dialed back testing on Nov. 11, triggering a rally that’s added almost $370 billion to the value of equities in the MSCI China Index. The yuan surged to an eight-week high earlier this month, while stronger measures to ease property woes also led to a rebound in developer bonds.

The protests, however, may dampen the mood especially now that some investors are starting to think that Chinese stocks may have reached a crossroads after the recent sharp gains. This has come despite a growing chorus of bullish China calls on Wall Street that cited cheap valuations and friendlier policies.

In global markets, the unrest in China may also dash hopes for a gauge of emerging-market currencies to record its best monthly rally in six years.

“The market volatility may persist for a while until people are convinced about the consistency of the logic behind” China’s Covid management measures, said Tommy Xie, head of Greater China research at Oversea-Chinese Banking Corp. “Whenever the implementation contradicts what’s being laid out in the Covid policy, the market will be confused and risk appetite will take a hit.”

Other News

Polish taxi driver Grzegorz says his phone won’t stop ringing, such is the demand for his services. Yet it’s not a ride people want.

Grzegorz has given up driving for a far more lucrative line of work as Poland grapples with energy shortages: illegal mining. Around his home in the Lower Silesian city of Walbrzych, coal sits as little as a meter below the surface in fields, recreation areas and even gardens. A four-man team can unearth a ton in an hour and make 1,000 zloty ($220) each for half a day’s work, roughly 60% of what an average person earns in a week.

“My wife is against it and worried about me, but as a taxi driver I wouldn’t be able to make this kind of money,” Grzegorz said as he hoisted a bucket of the black gold from a square hole on the edge of a residential area while two of his cohort chipped away with pickaxes.

Across the world, the dirtiest of fuels is going through a revival as Russia withholds gas supplies needed to generate electricity because of the war in Ukraine. That clamor is even more acute in Poland because a disproportionate number of households still depend on coal for heating and there’s a shortage the government is struggling to address.

Vladimir Putin’s invasion of his neighbor has reshaped the energy market, with European Union sanctions on Russia shutting down coal imports to Poland, where it’s used to heat 37% of homes. The nation of 38 million accounts for 77% of all households using coal for heating in the 27-member bloc.

With coal reserves being used up and temperatures plunging, the government in Warsaw is securing coal and relying on municipalities to distribute it. But some coal storage facilities have had to shop from supermarkets after suppliers ran out of stock in the immediate aftermath of the war, undermining President Andrzej Duda’s assurance that Poland has enough coal to last for 200 years.

So people are taking action. Some have turned to burning garbage, worsening air quality in a country where three of its main cities — Warsaw, Krakow and Wroclaw — were in the top 10 for pollution globally at one point this month.

In Walbrzych, it’s sent people driving across the border to buy coal in the Czech Republic — or to pick up shovels and dig. Mayor Roman Szelemej blamed the government for creating a national dependence on the fuel. “This crisis is showing that this was a mistake,” he said at his office.

With a population of about 100,000, the Walbrzych area’s economy relied on coal extraction for two centuries before the last (legal) pit closed in 2000.

The industry’s legacy looms large after thousands of miners were pushed out of work. Indeed, illegal mining isn’t new, it’s more a case of making a comeback. Unemployment is 12% in surrounding towns and villages, about three times the rate of the city itself, so an opportunity to make money can be tempting for those with the residual knowhow.

So-called “poor man’s pits” have sprouted up in forests, fields and shrubland. On the outskirts of the city, a cluster of small private gardens is also dotted with them. One resident said some people need the money and others the coal. The city, meanwhile, is sending patrols to check on the places they know are popular with miners.

“There are more pits in the locations we used to monitor throughout the last years over sporadic cases of illegal mining,” said Mateusz Majchrzyk, spokesperson for the Forestry Management in Walbrzych. “We noticed an increased activity around the mines, and we are also spending more money on the sand we use to fill in the holes.”

Grzegorz, who declined to give his last name or age given his involvement in an illicit trade, said he may be taking the opportunity to make good money, but he’s also helping resolve Poland’s gravest energy crisis in decades.

His group was supervised by Bartosz, who had three years’ experience working as a miner. The pit they were working on was around 3 meters deep, with two men in charge of digging accessing the hole using a hand-made wooden ladder. Grzegorz was filling the sacks with the coal to be carried to a car hidden behind the trees.

“We will dig here as long as we will be able to extract coal,” said Grzegorz. “And then we will dig a new pit.”