China relaxes zero-COVID policy

Macro & Overnight

China’s State Council has relaxed the zero-covid policy reflecting the politburo’s decision to prioritise economic stability over the COVID-19 battle. These changes look meaningful in a global macro context.

China’s economic growth is running below target. The trade data for November illustrated the issue, with exports falling at their fastest rate since January 2020.

The economic impact of Chinese covid policy changes is reflationary. However, the political consequences are more unclear, casting doubt on Xi’s grip on power and the potential fallout from any death rate spike stemming from these changes.

In the US, yesterday was not a good day for Donald Trump. His man in Georgia lost the senate race, and a jury found his Trump Organisation guilty of criminal tax fraud in New York. Meanwhile, Florida Governor Ron De Santis looks increasingly like the Republican candidate front-runner for 2024.

According to Halifax, UK house prices posted their biggest drop since late 2008, falling 2.3% in November. In annual terms, house price growth slowed to 4.7% in November from 8.2% in October.

Oil prices weakened significantly yesterday, with Brent trading below $80 for the first time since early January.

UK Company News

Dependency and addiction therapy specialist Indivior has issued a positive update ahead of its CMD in New York later today. Critically the company has raised guidance for Sublocade peak potential net revenue to >$1.5 billion from the previous $1bn. The company also sees significant operating margin expansion over the medium term. “Indivior has chosen NASDAQ as its US trading venue. The additional listing is expected to elevate Indivior’s profile in the company’s largest market and to attract a broader group of biopharma-focused investors and analysts.”   

Hobby game supplier Games Workshop reports that trading since the last update in September 2022 is in line with expectations. 

Online wine supplier Naked Wines reported H1 sales at +4% and a sharply increased EBIT. The company embarked on a “Pivoting to Profit” strategy in October, having parted company with its CFO and concerned investors about its financial position. Naked stated that new customer investment returns were abnormally and unacceptably low in 2022. Investors need to re-appraise what is a lower growth but more immediately profitable business. 

Specialist investment company Yellow Cake has a simple strategy. Its H1 update makes the case for buying and holding physical uranium. “The underlying fundamentals for nuclear energy, particularly with recent events highlighting the need for greater energy security, continue to strengthen. We see an acceleration of new nuclear build intentions, particularly from China and a broader appreciation of the value of the existing nuclear fleet infrastructure, with life extensions in the US and Europe and further restarts in Japan. Meanwhile, supply is still heavily constrained, driven by supply-side pressures and cost inflation and will not keep up with rising demand. We expect to see progressively higher offering prices by primary producers in the forward market segment.”

Prognosticator