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Inflation, Default, Covid, Evergrande Fears Weigh On Markets

There was an air of gloom across Asia’s trading floors on Wednesday with investors preoccupied by price rises, the political stand-off in Washington and Beijing’s regulatory crackdowns

A stock quotation board in Tokyo
The crisis at Chinese developer Evergrande continues to cast a shadow across Asia's markets.

 

Asia’s major markets retreated on Wednesday despite a strong lead from Wall Street, continuing worries about rising inflation and tighter monetary policy, a possible US debt default and the Delta coronavirus variant.

The equities rally, which has lasted more than a year, has hit the buffers as supply chain problems and a surge in energy prices caused by a recovery in demand has led to a sustained spike in inflation.

That has put increasing pressure on central banks around the world to wind in the ultra-loose monetary policies put in place last year to battle the impact of the pandemic, which have been key to the rebound in the global economy as well as markets.

 

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And investors are not happy, with some now warning that continuously high prices combined with signs that global growth is slowing could lead to a period of stagflation.

Also, the crisis at Chinese developer Evergrande continues to cast a shadow as the firm drowns in a sea of debt worth more than $300 billion and struggles to find the money to stay afloat.

While many observers have said they do not see the issue causing a major threat to the global economy, the potential impact its collapse could have on China’s crucial property sector is still a huge cause for concern.

“Evergrande is a long way from being contained, quite the opposite, in fact,” warned OANDA’s Craig Erlam. “Trading remains suspended on Evergrande’s shares, while other developers are now falling victim to the crunch… This is only starting to unravel.”

The US Federal Reserve is widely expected to soon announce it will begin cutting back its massive bond-buying programme, with interest rates possibly rising as soon as next year.

 

Interest Rate Rises

Other central banks have also hinted at moves soon or have already acted. On Wednesday, the Reserve Bank of New Zealand announced a first rate rise in seven years, joining the banks of South Korea and Norway.

A healthy study showing a forecast-beating improvement in the US services sector in September added to the argument for the Fed to act.

Wall Street’s three main indexes rallied on Tuesday, the day after a painful rout, but Asia was unable to follow suit.

Tokyo fell for an eighth straight session, while Hong Kong, Seoul, Sydney, Wellington, Mumbai, Bangkok and Taipei were also well in the red.

 

Crude Edges Higher

The Nikkei 225 index dropped 1.05%, or 293.25 points, to end at 27,528.87, while the broader Topix index dipped 0.30%, or 5.84 points, to 1,941.91.

The Hang Seng Index shed 0.57%, or 137.66 points, to 23,966.49.  Markets in mainland China were closed for a holiday.

But Singapore, Manila, and Jakarta posted gains. Shanghai remained closed until Friday for a holiday.

Crude edged higher again after shooting up more than 4% to multi-year highs in the past two days after OPEC and other major producers refused to lift output despite the rally in prices and concerns about the impact on inflation.

Democratic Senate leader Chuck Schumer warned of a US credit rating downgrade if lawmakers fail to raise the debt ceiling, with the country in danger of a catastrophic default.

 

MARKETS

Tokyo > Nikkei 225: DOWN 1.1% at 27,528.87 (close)

Hong Kong > Hang Seng Index: DOWN 0.6% at 23,966.49 (close)

Shanghai > Composite: Closed for a holiday

New York > Dow: UP 0.9% at 34,314.67 (close)

 

  • AFP with additional editing by Sean O’Meara

 

Read more:

Hong Kong Agencies Suing Evergrande Over Commissions

US Trade Office Seeks Comments On China Tariff Exclusions

 

Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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