Asian trade tense in the shadow of Evergrande and the Fed

Singapore, Sept. 22 (BNA): Asian stock markets got off to a cautious start on Wednesday and the dollar continued to hold steady amid ongoing tension over the fallout from the impending failure of developer China Evergrande and expectation that the Federal Reserve will move one step closer to tapering.

Japan’s Nikkei index fell 0.5%. China’s stock, bond and currency markets open for the first time on Wednesday since concern about the Evergrande predicament led to a wave of selling and contagion fears around the world.

Singapore-traded FTSE China Index futures are down about 2% from Friday’s closing level. Safe haven assets such as the yen and US Treasuries rose slightly in morning trading, according to Reuters.

Globally, markets calmed after a sharp sell-off on Monday, as analysts played down the risk of Evergrande’s problems turning into a “Lehman moment” and a financial crisis. But stocks have rarely rebounded, and commodities remain under pressure as concern turns to the economic consequences.

Overnight on Wall Street, the S&P 500 fell 0.1% to stay just under 4% below its record peak early in the month.

S&P 500 futures fell 0.4% in early Asian trade and the offshore yuan was under pressure near a one-month low of 6.4850 per dollar. Hong Kong markets are closed for a holiday.

“The Evergrande debacle is heightening concern about the fallout from the expanding China crackdown,” Rabobank analysts said in a note to clients, citing new rules on everything from online games to developer debt levels.

“As a result, the Evergrande may not be seen as a potential crisis release so much as a symptom of a broader shift in policy that threatens Chinese growth where politics dominates economic considerations.”

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Bloomberg reported on Tuesday that, as expected, Evergrande did not make interest payments due on Monday to at least two of the banks’ biggest creditors. The next test looms on Thursday when the company is due to pay $83.5 million in interest on the bonds — failure to do so within 30 days would put the bonds in default.

The company’s plight has already spread to other developers, and the Chinese high-yield corporate debt index – mostly issued by real estate companies – has collapsed. But investors are now expecting some kind of regulatory response from Beijing and hope the global fallout is contained.

In the currency markets, the dollar kept trying as traders were eyeing the risks that the Federal Reserve could surprise the markets by presenting its future rally forecast from 2023 to 2022.

The dollar settled at 1.1722 against the euro and bought 109.13 yen.

It also kept the heavily bare Australian dollar near a one-month low of $0.7229, while the New Zealand dollar came under pressure after a central bank official tempered expectations of a significant rate hike at next month’s meeting.

The 10-year US Treasury yield fell slightly at 1.3209%.

Most analysts think the Fed won’t go into detail about its downstream plans – saving that for November – but say the risks lie in board members’ “points chart” for rate expectations.

“Although the tapering announcement is not expected, the point chart could present a tough surprise and require Powell to be hawkish and to step back at the press conference,” said National Australia Bank Director of Economics and Markets Tapas Strickland.

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The result of the Federal Reserve meeting will be announced at 18:00 GMT with a press conference half an hour later.

In commodities, copper hovered near a one-month low and oil prices found support from the relaxation of domestic travel rules, likely to boost demand for airline fuel.

Brent crude futures rose in the latest trading by 0.4 percent to $ 74.64 a barrel, and US crude rose 0.4 percent to $ 70.75. Gold was supported at $1,774 an ounce.


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