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Nikkei Dips But Hang Seng Recovers As Inflation Fears Rise

Tokyo slid backwards, following Wall Street’s lead, as a rise in oil prices and the political stand-off in Washington dampened enthusiasm on trading floors.

Rising oil prices are sparking fears of an inflation surge. Reuters photo.

 

Tokyo’s Nikkei slumped on Tuesday following a dip on Wall Street as soaring oil prices heaped further upward pressure on inflation, while a standoff in Washington over raising the country’s borrowing limit fuelled fears of a catastrophic US debt default.

Hong Kong stocks finished slightly higher, rebounding moderately from the previous day’s hefty losses, though investors remain on edge over the crisis at China Evergrande.

And a decision on Monday by OPEC and other major oil producers not to increase their output by more than previously agreed – despite tightening supplies and rising demand – sent crude prices rocketing, with WTI hitting a seven-year high and Brent a three-year peak. Both main contracts rose again on Tuesday.

 

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The announcement fanned expectations that inflation, already sitting at multi-year highs, will spike further, putting pressure on central banks to taper their ultra-loose monetary policies sooner than flagged with interest rates to then rise.

And some analysts are even warning of a period of stagflation, in which prices surge while economic growth stalls.

Crude markets have come under pressure as the global economy emerges from the pandemic, pushing up demand for travel, among other things, while the approaching northern hemisphere winter has seen gas prices jump, which has in turn led companies to switch to oil.

All three main indexes on Wall Street ended deep in the red, led by the Nasdaq, as tech firms took a beating owing to their susceptibility to higher interest rates.

And the losses continued in Asia, with Tokyo briefly sinking as much as 3.5% before recouping some of the losses. Sydney, Seoul, Singapore, Wellington and Jakarta also fell.

The Nikkei 225 dropped 2.19% to end at 27,822.12, while the broader Topix index closed 1.33%, or 26.17 points, lower at 1,947.75.

 

‘Financial Chop-Fest’

However, Hong Kong reversed early losses following Monday’s sharp drop, with the Hang Seng Index adding 0.28%, or 67.78 points, to 24,104.15, while Taipei, Manila, Mumbai and Bangkok edged up. Shanghai was closed for a holiday.

“It looks like we are in for a bit of a chop-fest in financial markets for the rest of the week, until Friday’s [US jobs data] gives the street some clarity on the Federal Reserve taper,” said OANDA’s Jeffrey Halley.

Investors are growing increasingly nervous about US lawmakers bickering over lifting the debt ceiling with around two weeks of cash left, leaving the country on the brink of a historic debt default that several experts including Treasury Secretary Janet Yellen warned would cause a financial crisis.

With Republicans refusing to agree to more borrowing, calling Democrats spendthrift, President Joe Biden on Monday called his opponents “reckless and dangerous.”

 

Fantasia’s Troubles

Democratic infighting also continues to hold up progress on his multi-trillion-dollar infrastructure and social care bills.

The crisis in China’s property sector remained on investors’ minds, with news that developer Fantasia Holdings was in trouble after failing to make a payment to bondholders adding to concerns about the broader impact from the woes at indebted Evergrande.

With the real estate colossus teetering, there are concerns that its collapse would reverberate through China’s economy, with the property industry a major driver of growth.

There was no word from the firm on Tuesday, a day after it suspended trading in its Hong Kong shares pending an announcement on a “major transaction.”

The halt came as reports said Hong Kong real estate firm Hopson Development Holdings planned to buy a 51% stake in Evergrande’s property services arm.

 

MARKETS

Tokyo – Nikkei 225: DOWN 2.2% at 27,822.12 (close)

Hong Kong – Hang Seng Index: UP 0.3% at 24,104.15 (close)

Shanghai – Composite: Closed for a holiday

New York – Dow: DOWN 0.9% at 34,002.92 (close)

 

  • AFP with additional editing by Sean O’Meara

 

Read more:

China Property Default Woes Deepen on Evergrande Uncertainty

China Developers Facing Worst Debt Crisis In A Decade

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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