China XBB variant outbreak is concerning. China may extend massive lockdowns across the country to contain the covid variants. Could this be the beginning of a global depression/stagflation?

Chart 1

Chart 2

Chart 3

With Central Banks scrambling to contain inflation via an dovish and hawkish combination, in their reluctance to increase rates which are sitting way below their approximate terminal rate at close to 7% for the Federal Reserve.  As the worst inflation in 40 years is now entrenched into the global economy, regardless of apparent supply chains easing and oil and natural gas coming off multi decade highs.   The issue is that cost pressures for companies to complete in a stagflation environment remain an issue, dismal Q3 tech earnings said it all.  Higher overheads to run a company are here to stay and 2022 and 2023 job cuts are beginning to take hold.   We are not at all in deflation, this is classic example of looming stagflation.

However, the issue of China, particularly their economic slowdown and its spill over effect on commodity markets, more so oil.   Is becoming evident, with their strict zero Covid policy of lockdowns.  Chart 1 above showing the spike in the XBB variant that is now hitting Chinese cities.  As the West has decided to "live with the virus," which in its dreadful political slogan, it should be remined that the virus lives within you and it that process it can kill you.  As noted with this post, we all maybe behind the vaccination curve for these COVID variants as opposed to the flu, to which we are ahead of the curve.   Having recently caught the XBB after 4 vaccinations and getting quite a beatdown from the virus, explained here in this post.   The XBB is a variant that immunity from prior vaccines and other COVID variant infections won't assist.  In other words, you'll catch this again unless you get hit by it and vaccines are tweaked,  Up to this point there is NO XBB specific vaccine.  China may struggle, as noted with this report:  https://www.ft.com/content/392a603d-5f6f-4270-bec2-41e5da69cc67, to contain the virus within its massive population.   Thus, their hospital system could come under immense strain.   So, their lockdowns will remain in place.

This is where, if China does slow down  significantly because of the XBB breakout, while the West can make claims that it can do without China, the 2nd largest economy in the world, as noted in Chart 2, showing imports and exports of the U.S. and China, can clearly see how much American relies on China for income.

Chart 3, shows the oil price and the China 'lock down effect' on crude prices, please refer to the dates of lockdown/s beginning and ends, with the price notes.