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Stocks decline as yields flag inflation worries: markets wrap

The dollar held gains.
Image: Kiyoshi Ota/Bloomberg

Asia stocks declined Wednesday as rising bond yields stoked fears about inflation and as China Evergrande Group’s debt crisis intensified.

MSCI Inc.’s gauge of Asian stocks had the biggest drop in almost six weeks — and is headed for its first quarterly slide in six. Japan fell though pared some losses as counting was underway for a new leader for the ruling party. China dropped on the deepening debt crisis at China Evergrande Group.

US futures advanced after the S&P 500 fell the most since May with concerns over the debt-ceiling impasse in Washington adding to investor angst. The Nasdaq 100 tumbled the most since March as technology shares fared worse amid rising Treasury yields. Treasuries stabilised after the yield on the 30-year note jumped almost 10 basis points. WTI crude retreated and Brent pulled back from a three-year high. The dollar held gains.

During a Senate hearing, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen both warned that a US default due to a failure to raise the debt ceiling would have catastrophic consequences. Republicans blocked a Democratic move in the Senate to raise the debt limit.

Heated remarks from Senator Elizabeth Warren also weighed on markets. After slamming Powell on his track record over financial regulation, Warren said he’s a “dangerous man to head up the Fed” and that’s why she’ll oppose his renomination.

A global equity rally has stalled as investors reel from surging energy costs at the same time central banks are laying down plans to withdraw some of the pandemic stimulus. US consumer confidence dropped in September for a third straight month, suggesting concerns over the delta variant and higher prices continue to dampen sentiment.

“Part of the reason the US markets have been so strong and for so long is because of the complacency that inflation is gone and that central banks can keep interest rates low for a very long time,” Belita Ong, Dalton Investments chairman, said on Bloomberg Television. “So many things are in flux: the pandemic is not over, the supply chain bottlenecks we are seeing are affecting all sorts of prices and we’ll need to see how it plays out because the results are not clear in terms of inflation.”

In the latest Evergrande news:

  • The developer is selling a stake in its regional bank for about 10 billion yuan ($1.5 billion) as it offloads assets to address its debt crisis.
  • It is facing another bond interest payment after giving no sign that it had paid a separate one last week.
  • Evergrande holder Chinese Estates suspends trading in Hong Kong.
  • Fitch Ratings cut the credit rating to C from CC, one notch above the equivalent default level, to reflect “that Evergrande is likely to have missed interest payment on senior unsecured notes”.

Elsewhere, the pound traded around the lowest since January as expectations of higher rates were offset by surging energy prices and panic-buying that are keeping investors cautious. Bitcoin was trading below $42 000.

Here are some events to watch this week:

  • Japan’s ruling party votes to elect leader, Wednesday.
  • Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday.
  • House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday.
  • China Caixin manufacturing PMI, non-manufacturing PMI, Thursday.
  • Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income, Friday.

Some of the main moves in markets:

Stocks

  • S&P 500 futures rose 0.5% as of 1:11 p.m. in Tokyo. The S&P 500 fell 2%
  • Nasdaq 100 futures rose 0.5%. The Nasdaq 100 fell 2.9%
  • Topix index dropped 2.5%
  • Australia’s S&P/ASX 200 Index fell 1.2%
  • Kospi index fell 2%
  • Hang Seng Index fell 0.5%
  • Shanghai Composite Index lost 1.8%

Currencies

  • The Japanese yen was at 111.49 per dollar
  • The offshore yuan was at 6.4703 per dollar
  • The Bloomberg Dollar Spot Index was little changed
  • The euro traded at $1.1684

Bonds

  • The yield on 10-year Treasuries was at 1.53%
  • Australia’s 10-year bond yield climbed one basis point to 1.49%

Commodities

  • West Texas Intermediate crude fell 1.5% to $74.15 a barrel
  • Gold was at $1 739.82 an ounce, up 0.3%
© 2021 Bloomberg

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