Inflation and Evergrande keep world shares on back foot

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LONDON (Businesshala) – World stocks were on the back foot on Monday and the dollar neared a one-year high on concerns that high inflation, supply crunch and problems in China’s asset sector would put the global economic recovery at risk.

FILE PHOTO: An electric board shows the Nikkei index outside a brokerage in a business district in Tokyo, Japan, June 21, 2021. Businesshala / Kim Kyung-hoon

The stock market slid to 2-1/2-month lows last week, following a September one that shed them more than 4% as US Treasury yields rose 20 basis points, with the Federal Reserve unwinding this year. Chinese property giant Evergrande is poised to default.

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Those factors remain at play, days after trading in Evergrande shares was suspended, after it missed a second set of interest payments on offshore loans.

Media reports that Evergrande will sell a stake in its asset management unit for more than $5 billion, but that did little to quell sentiment.

Asian shares weakened as Hong Kong fell 2.7%, while Japan’s Nikkei slipped nearly 1%.

European markets were seen around flat and Wall Street futures were firmly in the red, with the tech-heavy Nasdaq down 0.7%.

Few events are concentrating the minds of investors. First is Monday’s OPEC-Plus meeting, with crude oil prices near a three-year high of $80 a barrel. Gas prices are also showing no signs of softening, reaching a new high of €96 per MW in Europe.

More important is Friday’s monthly US payrolls data that a Businesshala poll forecast will show the 500,000 jobs added last month.

Deutsche Bank told customers: “All roads this week point to payrolls on Friday, unless there is a marked decline in the full sweep of labor market indicators within the report, suggesting it to consolidate November’s taper.” will be the catalyst.”

US economic data on Friday showed strong consumer spending and factory activity, but fears that inflation will pick up, fueled by rising energy prices, labor shortages and supply crunch. This could force central banks to tighten policy more quickly and further than expected.

Already, the core US PCE price index, the Fed’s preferred inflation measure, rose 3.6% in August from a year ago, its biggest increase in three decades while euro area inflation hit a 13-year high.

While Fed boss Jerome Powell and other policymakers stressed that high inflation is temporary, Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities, said, “Powell has recently begun to hedge his comments as well, leading to Investors suspect he is also concerned about inflation”.

Those concerns fueled continued bidding for the dollar, which is near a one-year high against a basket of currencies and is poised for its biggest annual increase since 2015.

The greenback eased slightly on Monday, pushing the euro to $1.16145, lower than Thursday’s 14-month low of $1.1563. It declined to 111.135 yen, down from Thursday’s 1-1/2-year high of 112.08 yen.

US bond yields also eased off last week’s multi-month peak, with a 10-year yield of 1.489%, up from Tuesday’s three-month high of 1.567%.

The offshore-traded yuan meanwhile fell a quarter percent to 6.4520 as investors weighed the overall Evergrande effect. He also awaited a speech by US Trade Representative Catherine Tai on the Biden administration’s strategy for US-China trade relations.

“The biggest problem is not the default by Evergrande, but the environment that has led to its downfall. Authorities are regulating housing loan and lending to property firms. Markets are already looking for the next Evergrande,” said Kazutaka Kubo, senior economist at Okasan Securities.

“There is a growing risk that Evergrande’s crisis will spread to the entire Chinese property sector.”

Additional reporting by Hideyuki Sano in Tokyo, Editing by William McLean

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