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Market Report: China covid fears, UK immigration call from CBI and shock CEO shuffle at Disney

Written by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

Financial markets have caught a cold amid worries that mounting Covid cases in China and a fresh tightening of restrictions will send a fresh shiver through manufacturing output and push down demand for raw materials.

Outbreaks across the country clustering in mega cities like Beijing and Guangzhou are dashing hopes of an easing of the strict zero Covid policy. Oil has continued to march downwards, with Brent crude scuttling to around $87 dollars a barrel, after the 10% fall last week. The worsening situation is coming at a time of fears of flu outbreaks, which is putting fresh pressure on commodity stocks, with mining companies feeling more pain in trading today.

But the global wheels of trade are not yet slowing enough to stop inflation in its tracks in other economies such as the US, the UK and across the eurozone. Fresh warnings have come from American central bankers that interest rates will still have to be ratcheted up, given that there are big pockets of resilience, and a tightening of monetary policy isn’t yet bringing down the insidious price spiral. The Federal Open Market Committee Meeting minutes will be closely watched on Wednesday for any fresh clues about just how high policymakers expect rates to go, and whether another super-sized rate rise is still on the cards. Although the pace and size of hikes is expected to slow, the prospect that higher rates will linger for longer than hoped is adding to recession worries.

The dust refuses to settle on the UK’s Autumn statement, with a cacophony of criticism continuing about the lack of a longer-term vision of restoring robust growth to the UK economy, a call from the Confederation of British Industry for immigration to be harnessed to help solve the labour crisis will be closely watched. Although Chancellor Jeremy Hunt has clearly brought back financial stability with a big round of tax rises and spending cut promises, there were few seeds planted for long term sustained investment into increasing productivity either through re-skilling or automation. To fill the labour black hole, the CBI is arguing for more relaxed hiring rules for overseas workers in key areas. This clamour is expected to grow as companies struggle to pay higher wages to attract staff with other input costs also soaring. Unemployment may be forecast to ramp up, but there is a big mismatch of skills and job vacancies.

Disney’s big boardroom shuffle has grabbed the corporate limelight, with the return of Bob Iger to the CEO hotseat, and Bob Chapek ousted, taking the industry by surprise. Huge investments into its streaming service mean losses there are eyewatering. Disney+ isn’t’ expected to be profitable until 2024 and although subscriber numbers have been impressive, the rate of revenue growth is expected to start slowing. Theme parks have been propping up the business, and they are clearly highly resilient assets, but there will also be concerns that as a cost-of-living crisis wages in key markets, it could see ticket sales or merchandise revenue weaken. The company wants a shake-up and a change of direction, and Bob Iger, who led the House of Mouse for 15 years is clearly considered to be the best character for the job to throw a sparkle of magic back over the business.

The repercussions of the FTX collapse are still reverberating across financial circles, with bankruptcy filings showing it owes $3.1bn to its creditors, with just under half owed to just ten of its largest. Around a million smaller investors are also thought to have incurred deep losses. This is another stark reminder of the dangers of investing in the opaque world of crypto where the rules of the game have not been set and there is so little recourse of action, for speculators who throw the dice with money they can’t afford to lose.

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