Shanghai lockdown forces bankers to camp in offices

This is an audio transcript of the FT News Briefing podcast episode: Shanghai lockdown forces bankers to camp in offices

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, April 6th, and this is your FT News Briefing.

[MUSIC PLAYING] 

Government bonds continue to take a beating. The US will work with the UK and Australia to develop hypersonic weapons. Plus, we’ll hear about what’s happening in Shanghai, where more than 25mn people are still under a super strict Covid lockdown. I’m Marc Filippino, and here’s the news you need to start your day.

 [MUSIC PLAYING]

The yield on the 10-year Treasury note climbed to its highest level in nearly three years. Rising yields go along with falling prices, which means it was a very bad day for the 10-year Treasury. European government bonds also had a tough time. Now, if you had to put a finger on each reason for the sell-off, you’d need your whole hand. But there were a couple of factors in particular that really weighed on traders. Here’s our US capital markets correspondent, Kate Duguid.

Kate Duguid
So the biggest reason yesterday was because of the Fed. We had Lael Brainard, a Fed official, speak. She said that the Fed was going to start a, in her words, rapid reduction of its $9tn balance sheet as soon as May. And this is in order to take sort of stronger action to tighten financial conditions and to bring down inflation.

Marc Filippino
OK, so going back to the sell-off, why did traders not like her comments?

Kate Duguid
So it’s not as much about not liking it, but what happens is when the Fed reduces its balance sheet, when the Fed sort of steps back from the market after having been the biggest buyer of Treasuries for a very long time now, the market is flooded with supply. So we have a ton of Treasuries on the market and prices will go down and yields will go up. So yields move in anticipation of that quantitative tightening that’s expected to start in May.

Marc Filippino
Now, as I understand it, Kate, the new and tougher sanctions that the EU and the US announced yesterday on Russia also drag down prices on government debt. What’s the connection there? Why would these latest sanctions make investors want to sell government bonds?

Kate Duguid
Sure. So part of the sanctions package from Brussels included a ban on coal imports. There were some, I think, restrictions on oil imports that were being considered, but they were not included this time around. The coal futures yesterday were up 15 per cent because of this. So as commodity prices go up, those typically drive inflation higher and yields move with inflation. So despite the fact that there’s all this effort to combat inflation that central banks around the world are trying to rein it in, we still do have these forces like the war in Ukraine that are continuing to drive inflation up.

Marc Filippino
Kate Duguid is the FT’s US capital markets correspondent.

[MUSIC PLAYING] 

US military officials were stunned when they learned that China had successfully tested a nuclear-enabled hypersonic missile last summer. These are missiles that move at more than five times the speed of sound. Now, the US plans to expand a security pact with the UK and Australia to include co-operation on hypersonic missiles. Here’s the FT’s US-China correspondent, Demetri Sevastopulo.

Demetri Sevastopulo
The US has been working on hypersonic weapons, but China is just much further down the road. Just to give you an example, China has conducted somewhere in the region of 300 hypersonic weapons tests in recent years. The US, by comparison, has done less than a dozen. The reason the hypersonic weapons are so important is, first of all, they fly at very high speed, and almost more importantly, they can manoeuvre in flight so they’re harder to track, they’re harder to lock on to and they’re harder to shoot down. So a combination of all those things means the US is very, very focused on trying to catch up on hypersonic to make sure China doesn’t get even further ahead.

Marc Filippino
So Demetri, part of this is to create resistance to China’s military expanding. But there are other advantages to this alliance, right?

Demetri Sevastopulo
They also help the US overcome what the Pentagon calls the “tyranny of distance”, which means that, for example, if the US ended up fighting a war with China over Taiwan, you know, most of China’s military assets and ships, its planes, its missiles, they’re all in the backyard. They’re very close to Taiwan, whereas the US is far away. So having more co-operation with countries like Australia in the Indo-Pacific gives the US the ability to further project power more closely to China. And so it gives it more of a geographic advantage or less of a geographic disadvantage if it can do more with allies in the region. So Australia, you know, Japan, South Korea and others who are closer to China.

Marc Filippino
Demetri Sevastopulo is the FT’s US-China correspondent.

[MUSIC PLAYING] 

Beijing’s zero-Covid policy means the strict lockdown in Shanghai, China’s most important financial centre, has no end in sight. More than 25mn people can’t leave their homes and bankers can’t leave their offices. The only service industry still operating is food delivery, but people still can’t get the food they need. Here’s the FT’s China economics reporter, Sun Yu.

Sun Yu
There is no shortage of food around Shanghai. The difficult part is to find enough delivery people to really send the food to their doorstep. As of now, a lot of delivery people, delivery men, have also been quarantined. The authority is counting on Communist Party members to volunteer to deliver food to their neighbours. In some cases this works, but mostly I mean, people just are not willing to do this for free, you know. So a lot of Shanghai residents, especially those who live on the outskirts, are indeed having trouble getting a constant supply of food.

Marc Filippino
And this has got to really weigh on people, right? I mean, we’re reading stories of people not being able to get the medicine they need. Not to mention the food, of course. Are people getting angry or expressing any frustration?

Sun Yu
Yes, that is the challenge, because Shanghai people are relatively more westernised than people elsewhere in China. They’re more outspoken, they’re more vocal. So there are tons of social media posts complaining about the inhumane treatments, about the very small number of severe cases, to the extent that they thought that the lockdown is not at all necessary. And there are, I think, three or four very popular video recordings circulating on the internet.

Marc Filippino
Yeah, I wanna play a clip from one of those social media posts. It’s a recording of a conversation between a resident and a local official.

[AUDIO CLIP OF CONVERSATION PLAYING]

Marc Filippino
And you can just hear from her tone how frustrated she is. And the official that she’s talking to, she says she’s spending a lot of her own money to buy people food, and she breaks down because this is incredibly emotional for her, too.

[AUDIO CLIP OF CONVERSATION PLAYING]

Marc Filippino
So real frustration here among residents and officials they’re depending on to help them. Sun Yu, what’s happening in financial markets? How are bankers and traders doing their jobs?

Sun Yu
A lot of bankers these days are living in the office. That’s the solution. Bankers, investment bankers, IT people, traders and I think more than almost 100 staff with the Shanghai Stock Exchange now live in the office. They will sleep on the campus and they, and the employer will provide them with food. In that sense, the financial sector still works. But this is finance. It’s a people to people business. It’s getting a lot harder for bankers or loan officers to meet with clients or prospects. So in general, they are expecting their business to decline quite a bit because of the lockdown.

Marc Filippino
Is there any sign from officials that they might ease the lockdown rules?

Sun Yu
Unfortunately, not at all. Sun Chunlan, the vice premier of China, stressed the need to stick to a zero-Covid policy. Her idea, her logic, is that since Shanghai’s health system has already been overwhelmed by the Covid, other parts of the country where health system is in a far less-developed condition than Shanghai would come under even greater pressure, which is why China, including Shanghai, must stick to the zero-Covid policy.

Marc Filippino
That’s the FT’s China economics reporter, Sun Yu.

[MUSIC PLAYING] 

You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.