© Reuters. FILE PHOTO: A man wearing a protective mask, amid the COVID-19 outbreak, is reflected on an electronic board displaying stock prices outside a brokerage house in Tokyo, Japan, on September 21, 2021. REUTERS / Kim Kyung-Hoon
By Tommy Wilkes and Anushka Trivedi
LONDON (Reuters) – Shares fell on Friday as uncertainty over Chinese developer Evergrande dampened confidence, but major markets remained on track for a weekly gain, while European and US bond yields extended their increase after discussions on the withdrawal of the central bank.
The fact that the European and US indices look set to end the week higher seemed unlikely on Monday when fears of a default by Evergrande sparked the widespread sell-off of risky assets.
Investors have even ignored the more hawkish tone at Federal Reserve and Bank of England policy meetings and the first interest rate hike – in Norway – by a major central bank since the pandemic.
Analysts say investors remain optimistic about the outlook for global growth and are confident that central banks’ withdrawal of their stimulus packages will not derail the rebound and that the Evergrande crisis can be contained.
On Friday, however, there was some nervousness after the strong gains from the previous session.
The regional index slipped 0.8% after a string of three-day gains, while 100 also weakened.
Germany fell 0.8% ahead of weekend federal elections to elect German Chancellor Angela Merkel’s successor.
In Asia, the largest MSCI index of Asia-Pacific equities excluding Japan fell 0.5% to bring its weekly losses to 1.2%, its third consecutive decline.
US equity futures, the, were down 0.4%.
The MSCI World stock index fell 0.17% but was just in positive territory for the week, leaving it at 2.7% from record highs.
The Evergrande debt crisis continued to shake confidence, with Hong Kong and Shanghai shares closing lower after Reuters reported that some holders of the company’s offshore bonds had not received interest at Thursday’s deadline.
The real estate developer’s shares also fell 11% on Friday. They had risen 17.6% the day before after the company said it had agreed to settle coupon payments on a national bond.
Global investors fear that an Evergrande default could pose systemic risks to China’s financial system.
“For the long-term investor, we would view any significant rebound (in Chinese real estate stocks) as a chance to reduce positions, as we structurally see no revaluation history for developers,” Karl Chan, vice president of JPMorgan The real estate team from (NYSE 🙂 in China said on a conference call about the Evergrande situation.
JPMorgan lowered its rating of the entire Chinese real estate industry last week and its strategists said markets faced new risks in the next two to four weeks.
Bond yields in the US and eurozone have continued to rise after Thursday’s jump as expectations grow that the Fed will start cutting asset purchases by the end of the year and others countries are not far behind.
The benchmark 10-year Treasury bond yield was 1.425%, near a three-month high after gaining 13 basis points overnight.
(CHART: 10-year US government bond yield – https://fingfx.thomsonreuters.com/gfx/mkt/mopankbqkva/bond%20yields.PNG)
UK Gilts yields continued to rise as investors raised expectations of a BoE rate hike to March.
The 10-year rate rose 5bp to 0.965%, its highest since March 2020, before settling at 0.91%. The 2-year yield hit 0.437% – also the highest since March 2020 – before falling to 0.377%, down 1bp on the day.
Italy’s 10-year yield hit 0.796%, its highest since July 6.
The feeling that a surge in inflation in many countries may not be as temporary as central bankers thought a few months ago is also fueling the rise in yields.
“Central bankers have spoken in unison that inflation is transient, but if even the Fed eases its stance on it, it could also be the case elsewhere,” said Jan von Gerich, chief analyst at Nordea.
“There is, however, a difference between the United States and the eurozone, where it is easier to accept the story that the price pressures are transient.”
The Fed said on Wednesday it could start cutting its monthly bond purchases as early as November and that interest rates could rise faster than expected by next year. The November deadline has been largely integrated by the markets.
Friday rose 0.1% after falling sharply overnight against a basket of peers. [FRX/]
The euro fell to $ 1.1721 while the yen was stable against the dollar.
Oil prices rose for a fourth day in a row amid global supply issues following powerful storms in the United States. [O/R]
rose 0.1% to $ 77.33 per barrel and US oil gained 0.1% to $ 73.35 per barrel.
Gold rose 0.5% to $ 1,751 an ounce. It fell more than 1% the day before as rising yields hurt the non-interest bearing asset. [GOL/]