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Asia shares dip on inflation worries, Evergrande jitters

Julie Zhu

Oct 12, 2021

Asian shares dropped and Treasury yields held firm on Tuesday, as a global energy crunch fuelled inflation fears and concerns about Evergrande's debt problems intensified, clouding investor sentiment before the U.S. corporate earnings season.

China Evergrande Group on Tuesday missed its third round of bond coupon payments in three weeks, intensifying market fears over contagion involving other property developers as a wall of debt payment obligations come due in the near-term.

Evergrande's debt troubles have sent shockwaves across global markets in recent months.

European markets appeared set for a lower open with pan-regional Euro Stoxx 50 futures down 0.73% and London's FTSE futures falling 0.55%. U.S. stock futures, the S&P 500 e-minis, shed 0.33%.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.9%, while Chinese stocks also fell.

"Many in the market are currently in the wait-and-see mode," said Zhang Zihua, chief investment officer at Beijing Yunyi Asset Management. "Investors are eagerly watching if there will be any measures from Beijing to help solve Evergrande's debt problem, which would need comprehensive plans."

Reuters reported earlier that some bondholders said they did not receive coupon payments totalling $148 million on Evergrande's April 2022, April 2023 and April 2024 notes due by 0400 GMT on Tuesday. Rivals Modern Land and Sinic Holdings also became the latest developers scrambling to delay bond payment deadlines.

China's blue-chip CSI300 index fell 1.52%, while the coal sub-index dropped 3.8% amid government efforts to urge firms to increase output.

In Hong Kong, the Hang Seng index fell 1.3%, dragged by tech giants.

Elswhere in Asia, Australian shares slipped 0.26% while Japan's Nikkei stock index slid 0.79%.

On Monday, Wall Street's main indexes ended a choppy session lower as investors grew nervous ahead of the third-quarter earnings reporting season, set to kick off with JPMorgan Chase & Co (NYSE:JPM) results on Wednesday.

Some analysts expect companies to report slowing growth due to supply-chain snags and rising prices. They warned that this could lead to a drop in U.S. stocks.

JPMorgan shares were down 2.1% and among the biggest drags on the S&P 500, which lost 0.69% to 4,361.19. The Dow Jones Industrial Average fell 0.72% while the Nasdaq Composite dropped 0.64%.

After U.S. data last week showed weaker jobs growth than expected in September, the focus now shifts to inflation and retail sales numbers this week.

"Economies appear to be entering a more challenging phase of the cycle and we think investors and corporates will be monitoring how the economic data and earnings results fall before making assessments of near term direction," ANZ analysts said in a note.

Investors also expect the Federal Reserve to begin tightening policy by announcing a tapering of its massive bond-buying next month.

The prospect of accelerating inflation and tighter monetary policy lifted bond yields. The yield on benchmark 10-year Treasury notes climbed to 1.6137% while the two-year yield also rose to 0.3499%.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 94.308.

Gold, usually seen as a hedge against inflation, was slightly higher. Spot gold was traded at $1761.37 per ounce. [GOL/]

Oil prices extended weeks of gains fuelled by a rebound in global demand that is contributing to energy shortages in economies from Europe to Asia.

U.S. crude ticked up 0.32% to $80.78 a barrel. Brent crude rose to $83.98 per barrel.

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