🇨🇳 China’s “zero-Covid” effect

Monday, April 25, 2022 by Robinhood Snacks |
Traffic jam in Shanghai (Lu Hongjie/Costfoto/Future Publishing via Getty Images)

Traffic jam in Shanghai (Lu Hongjie/Costfoto/Future Publishing via Getty Images)

Traffic jam in Shanghai (Lu Hongjie/Costfoto/Future Publishing via Getty Images)

Traffic jam in Shanghai (Lu Hongjie/Costfoto/Future Publishing via Getty Images)

Last Week’s Market Moves
Dow Jones
33,811 (-1.86%)
S&P 500
4,271 (-2.75%)
Nasdaq
12,839 (-3.83%)
Bitcoin
$39,694 (-2.11%)

Hey Snackers,

This could be the most significant scientific breakthrough of our times: MIT researchers confirmed that the perfect Oreo split is possible. FYI: “Oreologist” is a career path.

Stocks plunged for the week as investors digested some bummer corporate earnings (cough, Netflix) and fretted over the Fed’s rate hikes, which could slow growth even more. The S&P lost nearly 3% for the week, and the Dow had its worst day since 2020.

Also, big update for the Snackers: today Nick and Jack are relaunching the pod independently as “The Best One Yet.” Robinhood is stoked to be the exclusive sponsor, and we can’t wait to see what’s next.

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Waves

1. As China tightens its “zero-Covid” lockdowns, the world’s economy could get rocked 2020-style

Stark contrast... While Americans fly to spring vacays (legally) unmasked, 26M people in Shanghai are under strict Covid lockdown, policed by robot dogs and drones. China's largest city has been on a monthlong freeze as the government enforces its zero-Covid policy. Last week Shanghai reported three Covid deaths, the first official fatalities of an outbreak that’s infected about 400K people since March. Despite a near-zero death rate and falling cases…

  • China’s doubled down on the harshest measures since the pandemic began: it’s sending all Covid-positive patients in Shanghai to quarantine centers, regardless of symptoms. It’s also amping up mass testing and tracing.
  • Some residents are running out of food and water as clogged ports and closed roads crush supplies. It's illegal to leave home to get groceries, and food-delivery drivers are overstretched. The food crisis has sparked clashes between residents and police.

A city 3X the size of NYC... Shanghai accounts for a 10th of China's exports, but now the world's busiest port is at a virtual standstill. It’s hurting China: spending fell last month and unemployment hit the highest level since early in the pandemic. It’s also rippling across the global economy, disrupting everything from corporate profits to the ETA of your Shein order:

  • Pricey shipping: The cost to export a container is 5X higher than pre-pandemic, and air freight rates have doubled.
  • Deflated earnings: Nearly a fifth of S&P 500 companies get at least 5% of their business from China, and half of US companies in China have reduced their annual sales estimates.
  • Crushed output: Tesla, Volkswagen, and iPhone-assembler Pegatron are among the manufacturers that’ve had to shut down plants during the lockdown.
THE TAKEAWAY

It could be worse than 2020… at least economically. That’s because the world’s been relying more on Chinese products since the pandemic started. China’s shares of global exports surged to 15.4% last year, the highest in a decade. Read: China’s lockdowns will likely have an even greater impact on inflation and global growth than they did the first time around.

Zoom Out

Break out the breath mints… The great de-masking is here, and it’s confusing. Last week a federal judge tossed the mask mandate for transportation. Airlines like United, American, and JetBlue dropped their mask rules in response (some pilots did so midflight). Uber and Lyft followed suit. But the Biden admin is appealing the ruling. Travelers now face a maze of rules heading into the busy summer travel season: masks are optional on flights, but must be on for public transit (subways, buses, cabs) in cities like NY and LA.

Putting the “more” in mortgage... It’s a hard time to be a house hunter. In the past two years, inventory sank to a 20-year low just as home prices started hitting record highs. Now mortgage rates are above 5% — their highest level in a decade. Soaring rates are making it more expensive for buyers to borrow $$, if they’re lucky enough to win a bid. Though rising rates are already starting to cool demand, experts expect housing prices to stay high for a while. Some economists even worry the US is at risk of another housing bubble.

Events

Growing, growing, gone... Big Tech may be in for a bumpy earnings week. Last week, Netflix reported a subscriber loss for the first time in a decade, which wiped $50B from its market cap. It’s not the only techie stalling out: in February, Meta posted its first user drop ever. Other tech giants face a combo of labor, inflation, and regulatory issues. We’ll see if the pandemic profit party’s ending for Microsoft, Google, Apple, and Amazon when they report this week, and whether Meta has reversed its last quarter’s user shrinkage.

Treat-yo-self season... is still here. Visa and Mastercard are seeing a spike in swipes as you splurge on new fits and dining out. Last quarter, both saw revenues jump 25%. Now higher credit costs (which rise with interest rates) could boost payments from card holders. Plus, this month Visa and Mastercard plan to raise swipe fees for merchants, which make up the bulk of their profits. But since those fee hikes are passed to customers, lawmakers are calling for them to be shelved. Still, the swipe fees could push profits close to records when they report this week.

ICYMI
  • Bravo: The maker of pricey Steinway pianos filed to go public on the NYSE. The IP-ian-O comes as luxe spending booms, especially in China, where 30M kids study piano (compared to 10M in the rest of the world).
  • Rev: Tesla’s delivering more cars than ever, even in the face of parts shortages that are holding back its OG competitors. While GM and Toyota saw big sales declines, Tesla’s making record profits. But China’s zero-Covid policy could slow it down.
  • Adflix: Are you still watching? Apparently not. Netflix’s surprise subscriber loss is sending shockwaves through the streaming world. The Flix is planning an ad-supported tier and a crackdown on password sharing to juice growth.

What else we’re Snackin’

  • Mickey: Special-district status has allowed Disney to govern itself in Florida for decades, but on Friday Gov. DeSantis revoked that status in a political fight that could cost taxpayers $1B.
  • Sneeze: Pass the tissues — WFH is killing the sick day. While you can’t catch a cold through your screen, experts say managers still need to prioritize employee wellbeing.
  • Stage: Coachella’s a content farm, but nothing ruined the live-music magic like Revolve Fest, an event for Coachella VIPs that some are calling “Fyre Fest 2.0.” Think: influencers stranded in the desert.

Snack Fact of the Day

Nearly 12B spam texts were sent last month in the US. That’s about 40 texts for every American

This Week

  • Monday: Earnings expected from Coca-Cola, Activision Blizzard, and Canon
  • Tuesday: Earnings expected from Microsoft, Alphabet, Visa, PepsiCo, Novartis, UPS, BP, GE, Starbucks, Mondelez, 3M, UBS, GM, Capital One, and Chipotle
  • Wednesday: Billboard Music Awards. Earnings expected from Meta, T-Mobile, PayPal, Sony, Boeing, Ford, Warner Bros. Discovery, Kraft Heinz, eBay, Spotify, Pinterest, Hertz, Mattel, and Harley-Davidson
  • Thursday: Economic data from the first quarter. NFL draft. Weekly jobless claims. Earnings expected from Apple, Amazon, Mastercard, Merck, Comcast, Intel, McDonald’s, Caterpillar, Altria, and Hershey
  • Friday: Earnings expected from ExxonMobil, Chevron, AbbVie, AstraZeneca, Bristol Myers Squibb
  • The weekend: Eid al-Fitr, the celebration in Islam that marks the end of Ramadan, starts on Sunday

Authors of this Snacks own: shares of Netflix, Apple, Alphabet, Starbucks, Ford, GM, Tesla, Amazon, Disney, Microsoft, Uber, and Spotify

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