The market has suddenly taken a more-benign view on the omicron variant, concluding that while it's likely more contagious, it also appears to be less severe.
Whether that data holds up will keep the market guessing for weeks but if it does, my main worry is China.
Officials in China have done a remarkable job of suppressing covid through testing, contact tracing and authoritarianism. It's something that few people (including me) thought would be possible. But if omicron is twice as transmissive, then it's going to be exponentially harder to control outbreaks. Today there were 74 new cases reported in the mainland and 94 a day earlier.
At some point China -- and everyone else -- will have to mitigate and manage.
The problem is that there will be a sloppy transition from total suppression to mitigation. We got a taste of this in New Zealand where two months of lockdowns ultimately failed to eliminate the virus.
If China follows a similar path the result could deal another major blow to global supply chains. A taste came with today's announcement of a 14-day lockdown in a district in Ningbo due to an outbreak.
Platts reporting offers a taste of what could be to come:
"Just received an update from our China contacts...Zhenhai district has been locked down due to three positive cases of COVID-19. The lockdown is for 14 days," a source said. An importer based in the US confirmed the same information, adding that the company's Shanghai office has been closed.
"We need to now ascertain the impact on port and terminal operations and how much trucking and depot operations will be affected," a source based in Singapore said. However, this also means other regions could also soon see similar restrictions, the source said.
"The rising COVID infections may lead to shutdowns at Ningbo and some other ports in China, adding to congestion and cargo backlogs," a source with a UK-based logistics company said. "this is only the beginning -- the first quarter of 2022 is going to be a complete wreck."
The result could be devastating for companies that are starting to see better signs in the global supply chain. It could lead to more price increases and product shortages. That's especially true if the omicron variant helps keep goods spending elevated relative to services.
The result could be a spike in prices that resets inflation expectations higher and leaves central banks fighting a battle that could ultimately pop the bond bubble.