Bears on the move as China, Evergrande join Fed tapering woes
- Asian-Pacific equities drop amid fears emanating from China, Evergande and Fed.
- Evergrande nears bond coupon payment on Wednesday, markets expect a miss.
- Fitch cuts China rating, Japan’s GPIF to avoid Chinese government bonds.
- Fed tapering, US debt ceiling extension offer extra challenges to the market sentiment.
Asian shares take offers as pessimism concerning China’s economic recovery contrasts the Fed’s tapering chatters. Also weighing on the sentiment are the fears over US debt limit expiry and Evergrande’s likely failure to pay interest on company bonds, scheduled for payment on Wednesday.
Amid these plays, MSCI’s index of Asia-Pacific shares outside Japan drops 1.30% on a day while Japan’s Nikkei 225 prints 2.45% daily downside by the press time of the pre-European session on Wednesday.
As China struggles with Evergrande problems and power cut issues, Fitch follows the global phenomena and cut the dragon nation’s credit rating from CC to C. Also speaking negatively for Chinese investors is the Reuters news that Japan’s Government Pension Investment Fund (GPIF) will not invest in yuan-denominated Chinese government bonds due to settlement and liquidity issues.
The pessimism at the world’s second-largest economy not only weighs down the equities in Beijing but also drowns stocks from Hong Kong, Australia and New Zealand. Markets in New Zealand had another worry in the form of one-month high covid infections while Aussie traders feared the end of the government’s emergency pandemic relief.
Elsewhere, India’s BSE Sensex follows the general risk-off mood and strong oil prices to print 0.50% intraday losses whereas South Korea’s KOSPI drops over 1.50% at the latest following the sober mood. It’s worth noting that Indonesia’s IDX Composite bucks the trend with mild losses amid covid-led headlines.
On a broader front, S&P 500 Futures rise 0.50% intraday, snapping a two-day fall, whereas the US 10-year Treasury yields seesaw around mid-June highs after rising for five consecutive days. Further, the US Dollar Index (DXY) remains sidelined around the 10-month top as the greenback traders seek fresh clues to break the monotony.
Looking forward, scheduled speeches from the Fed and the ECB leaders will be the key, as well as US President Joe Biden’s efforts to overcome the deadlock concerning the debt limit and stimulus, which will be the key to follow for fresh impulse. Also important will be the news relating to China’s economic transition and Evergrande.