(Bloomberg) — Asia stocks declined Wednesday as rising bond yields stoked fears about inflation and as China Evergrande Group’s debt crisis intensified.
MSCI Inc.’s gauge of Asian stocks had the biggest drop in almost six weeks — and is headed for its first quarterly slide in six. Japan fell as two candidates took part in a runoff vote for leader of the ruling party. China slid on the deepening debt crisis at China Evergrande Group.
U.S. futures rose after the S&P 500 fell the most since May with concerns over the debt-ceiling impasse in Washington adding to investor angst. The Nasdaq 100 tumbled the most since March as technology shares fared worse amid rising Treasury yields. European contracts climbed. Treasuries stabilized after the yield on the 30-year note jumped almost 10 basis points. Oil retreated and the dollar slipped.
During a Senate hearing, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen both warned that a U.S. default due to a failure to raise the debt ceiling would have catastrophic consequences. Republicans blocked a Democratic move in the Senate to raise the debt limit.
Heated remarks from Senator Elizabeth Warren also weighed on markets. After slamming Powell on his track record over financial regulation, Warren said he’s a “dangerous man to head up the Fed” and that’s why she’ll oppose his renomination.
A global equity rally has stalled as investors reel from surging energy costs at the same time central banks are laying down plans to withdraw some of the pandemic stimulus. U.S. consumer confidence dropped in September for a third straight month, suggesting concerns over the delta variant and higher prices continue to dampen sentiment.
“Part of the reason the U.S. markets have been so strong and for so long is because of the complacency that inflation is gone and that central banks can keep interest rates low for a very long time,” Belita Ong, Dalton Investments chairman, said on Bloomberg Television. “So many things are in flux: the pandemic is not over, the supply chain bottlenecks we are seeing are affecting all sorts of prices and we’ll need to see how it plays out because the results are not clear in terms of inflation.”
In the latest Evergrande news:
The developer is selling a stake in its regional bank for about 10 billion yuan ($1.5 billion) as it offloads assets to address its debt crisis
It is facing another bond interest payment after giving no sign that it had paid a separate one last week
Evergrande holder Chinese Estates suspends trading in Hong Kong
Fitch Ratings cut the credit rating to C from CC, one notch above the equivalent default level, to reflect “that Evergrande is likely to have missed interest payment on senior unsecured notes”
Elsewhere, the pound traded around the lowest since January as expectations of higher rates were offset by surging energy prices and panic-buying that are keeping investors cautious. Bitcoin was trading around $42,000. Cotton jumped to near a decade high.
Just after the market closed, Fumio Kishida was voted the new leader of Japan’s ruling party.
Here are some events to watch this week:
Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday
House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday
China Caixin manufacturing PMI, non-manufacturing PMI, Thursday
Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.5% as of 7 a.m. in London. The S&P 500 fell 2%
Nasdaq 100 futures rose 0.6%. The Nasdaq 100 fell 2.9%
Topix index dropped 2.1%
Australia’s S&P/ASX 200 Index fell 1.4%
Kospi index fell 1.3%
Hang Seng Index rose 0.3%
Shanghai Composite Index lost 1.3%
Euro Stoxx 50 futures added 0.3%
Currencies
The Japanese yen was at 111.46 per dollar
The offshore yuan was at 6.4686 per dollar
The Bloomberg Dollar Spot Index fell 0.1%
The euro traded at $1.1688
Bonds
The yield on 10-year Treasuries was at 1.53%
Australia’s 10-year bond yield climbed one basis point to 1.49%
Commodities
West Texas Intermediate crude fell 1.7% to $74.05 a barrel
Gold was at $1,740.36 an ounce, up 0.4%
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