“Emergency Mode” – China Warns Covid Outbreak To Worsen In Coming Days

Any hopes that covid is finally on its way out and won’t be used by the establishment to ram through trillions more in stimulus, are about to die a slow, painful death. To be sure, there has been much to the optimistic about: covid cases in the US have plunged in the past month, with hospitalization numbers sliding and daily covid deaths now sharply lower.

This hopeful backdrop prompted Bank of America last week to write that “with the much more transmissible Delta variant now dominant, are we in for another difficult winter? Probably not.” It also led JPMorgan’s Marko Kolanovic to declare on Oct 6 the de facto end of the pandemic:

Our core view remains that the COVID situation will continue improving driving a cyclical recovery. This will be the case for at least the next  3-4 months given COVID wave dynamics, but most likely also beyond that. We believe that this was the last significant wave, and an effective end to the pandemic.

Alas, not so fast.

Last Friday, Bloomberg issued the first “new wave” covid alert, targeting the UK, and writing that “after 19 months spent attempting to ward off Covid-19 while safeguarding jobs and businesses, the U.K. is heading into winter with a growing problem: The coronavirus is spreading rapidly, just as the economy starts going in the opposite direction.“

According to the report, “U.K. cases are accelerating faster than in other western European nations, while deaths have jumped to their highest since March.” And while UK government ministers are having to deny they are planning for a new lockdown, “at the same time, economic growth is slowing, inflation is running high, the Bank of England is expected to hike rates soon and households are facing a cost-of-living crisis.”

In short, a new wave of covid – whether real or imagined – is about to be unleashed on the UK at the worst possible time, just as the BOE may be about to hike rates in a matter of weeks to offset the UK’s soaring inflation with 5Y breakevens hitting the highest level this century.

But it’s not just the UK: with China’s economy rapidly contracting even as its energy crisis has sent commodity prices soaring and threatens to unleash record PPI prints in coming months…

… the world’s second largest economy is about to face a far greater threat. According to Bloomberg, a Chinese health official said that the country’s new Covid-19 infections will increase in coming days and the areas affected by the epidemic may continue to expand.

Of course, this being China not one statement about anything can be made without lies, and this one was not exception: speaking at a briefing in Beijing on Sunday, Wu Liangyou, an official at the National Health Commission, said that the current outbreak in China is caused by the delta variant from overseas. Right, it’s all the foreigners fault. 

Origins aside, the wave of infections spread to 11 provinces in the week from Oct. 17, Mi Feng, spokesman for the commission, said at the briefing. Most of the people infected have cross-region travel histories, Mi said. He urged areas that have been affected by the pandemic to adopt “emergency mode.”

In preparation for the new wave, already some cities in the provinces of Gansu, including its capital Lanzhou, and Inner Mongolia have halted bus and taxi services because of the virus, according to Zhou Min, an official at the transport ministry.

China reported 26 new local confirmed Covid-19 infections on Saturday, including seven in Inner Mongolia, six in Gansu, six in Ningxia, four in Beijing, one in Hebei, one in Hunan and one in Shaanxi, according to the National Health Commission. Another four local asymptomatic cases were reported in Hunan and Yunnan.

And while the latest wave is still modest, with Goldman counting just 70 local Covid cases reported in the Oct 22 week, for Beijing to take the surprising step of making a public announcement that it’s about to get worse, suggests just that: that the “data” is about to show a major spike in local cases.

It also means that China’s effective lockdown index is about to take a sharp turn higher.

Meanwhile, the epidemic is also spreading in the capital Beijing, where it has expanded to three districts including Haidian, a scientific hub, Pang Xinghuo, vice head of the Beijing Center for Disease Prevention and Control, said at a briefing Sunday; he added that five new confirmed local Covid cases and an asymptomatic one were reported between Saturday midday to Sunday 3 p.m.

As part of the coming round of lockdowns, Beijing will cancel a marathon originally scheduled for Oct. 31 due to the virus, the Beijing Daily reported. People in cities where infections have been found are banned from visiting or returning to the capital at present, the newspaper said.

Bottom line: while power blackouts lead to a sharp swoon in Chinese output in the early part of the month, it now appears that covid will be blamed for the next round of factory lockdowns, and the result will be even more snarled supply chains only this time the Biden administration will not blame “too much demand” but not enough Chinese supply. The end result, however, will be the same: even fewer goods and even higher prices for virtually everything this holiday season.