Thursday, 21st October, 2021
Thursday, 21st October, 2021

Asian markets follow Wall St plunge as oil surge fans inflation fears

Asian markets tumbled Tuesday, extending a global rout that saw Wall Street slump, as soaring oil prices put
further upward pressure on inflation while a standoff in Washington over
raising the country’s borrowing limit fuelled fears of a catastrophic US debt
default.

Investors were nervously monitoring developments in the crisis surrounding
troubled property giant China Evergrande, which has raised warnings about
contagion in the world’s number two economy and possibly beyond.

A decision Monday by OPEC and other major producers not to increase their
output by more than previously agreed — despite tightening supplies and
rising demand — sent crude prices rocketing, with WTI hitting a seven-year
high and Brent a three-year peak. Both main contracts rose Tuesday.

The announcement fanned expectations that inflation, already sitting at
multi-year highs, will spike further, putting pressure on central banks to
taper their ultra-loose monetary policies sooner than flagged with interest
rates to then rise.

And some analysts are warning of a period of stagflation, in which prices
surge while economic growth stalls.

Crude markets have come under pressure as the global economy emerges from
the pandemic, pushing up demand for travel, among other things, while the
approaching northern hemisphere winter has seen gas prices jump, which has in
turn led companies to switch to oil.

“Prices are likely to remain supported in the final quarter, with gas-to-
oil switching and pricey coal adding to oil consumption,” Will Sungchil Yun,
an analyst at VI Investment Corp, said.

All three main indexes on Wall Street ended deep in the red, led by the
Nasdaq, as tech firms took a beating owing to their susceptibility to higher
interest rates.

– US debt fears build –

And the losses continued in Asia, with Tokyo briefly losing as much as 3.5
percent before edging back slightly.

Seoul shed more than two percent, while Singapore and Wellington were off
more than one percent. There were also losses in Hong Kong, Sydney, Taipei
and Manila.

“We think there is going to be more volatility in these markets,” Emily
Weis at State Street told Bloomberg Television. “It’s not going to be the
same sort of ‘risk assets always go up over time’ story that maybe happened
in the rebound from Covid.”

Investors are growing increasingly nervous about US lawmakers bickering
over lifting the debt ceiling with around two weeks of cash left, leaving the
country on the brink of a historic debt default that several experts
including Treasury Secretary Janet Yellen warned would cause a financial
crisis.

With Republicans refusing to agree to more borrowing, calling Democrats
spendthrift, President Joe Biden on Monday called his opponents “reckless and
dangerous”.

Democratic infighting also continues to hold up progress on his multi-
trillion-dollar infrastructure and social care bills.

The crisis in China’s property sector remained on investors’ minds, with
news that developer Fantasia Holdings was in trouble after failing to make a
payment to bondholders adding to concerns about the broader impact from the
woes at indebted Evergrande.

With the real estate colossus teetering, there are concerns that its
collapse would reverberate through the world’s number two economy, with the
property industry a major driver of growth.

There was no word from the firm Tuesday, a day after it suspended trading
in its Hong Kong shares pending an announcement on a “major transaction”. The
halt came as reports said Hong Kong real estate firm Hopson Development
Holdings planned to buy a 51 percent stake in Evergrande’s property services
arm.

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