LONDON/HONGKONG – European shares tumbled on Friday, but uncertainty about the fate of debt-ridden China Evergrande weighed on investor sentiment.
The sector-wide STOXX 600 index slipped 0.78 per cent after three days of gains. Britain’s FTSE 100 and Germany’s were also weak.
Still, European stocks are set to end the week higher despite Monday’s sharp sell-off, as investors turned more positive on global growth outlook after the US Federal Reserve policy meeting and hopes the Evergrande crisis is contained could.
It was a different story in Asia where MSCI’s broadest index of Asia-Pacific shares outside Japan changed little on the day, but has fallen 0.7 percent this week and is poised for a third consecutive weekly loss.
Japan’s Nikkei rose 2 per cent with global gains after markets closed for a public holiday.
Chinese blue chips cut most of their initial losses following a cash injection from the central bank to 270 billion yuan ($42 billion), the biggest since January.
US stock futures, the S&P 500 E-minis, were down 0.34 percent.
Evergrande’s debt crisis continues to shake confidence.
Shares of the property developer fell 11 percent on Friday, extending losses after a Reuters report that some offshore bondholders had not received interest payments by Thursday’s deadline. It rose 17.6 per cent the previous day after the company agreed to settle interest payments on domestic bonds.
Global investors are on tenterhooks as Evergrande’s debt payment obligations, which are laboring under a mountain of $305 billion in debt, sparked fears that its malaise could pose systemic risks to China’s financial system.
Ray Ferris, chief investment officer for South Asia at Credit Suisse, said while investors were concerned about China’s prospects due to the asset sector crisis and several regulatory changes, there was positive sentiment elsewhere.
“Growth in large developed economies is above trend, is likely to remain above trend and monetary policy remains very supportive of asset prices through the middle of next year,” he said.
“Every time the system shocks we give an improvement, but these are shallower than in the past several decades because of the weight of the money there needs to be home.”
The Fed said on Wednesday it could begin reducing its monthly bond purchases by November, and that interest rates could be faster than expected by next year. The November time frame was primarily priced by the markets.
With stocks rallying on Thursday, the dollar index fell sharply overnight against a basket of its peers, falling from its highest in nearly a month to a one-week low before stabilizing in European hours.
Yields on the benchmark 10-year Treasury notes strengthened marginally to 1.44 per cent, the highest level since July 2, having gained 15 basis points in the past two days.
The bulk of the overnight gains following a rate hike by the Norwegian Central Bank and scathing comments from the Bank of England reinforce market expectations that the Fed will begin tapering by the end of the year.
“Central bankers are talking together about inflation being temporary, but if the Fed is also softening its stance, it could be elsewhere,” said Nordea chief analyst Jan von Gerich.
“Although there is a gap between the US and the euro area, where it is easy to buy into the story that price pressures are momentary.”
Oil prices rose for the fourth day in a row on global supply concerns following a powerful storm in the United States.
Brent crude rose 0.4 percent to $77.56 a barrel and US oil rose 0.2 percent to $73.46 a barrel.
On Friday, the spot price rose 0.7 per cent to $1,754 an ounce. It fell more than 1 percent a day earlier as higher yields damaged non-interest-bearing assets.
by Tommy Wilkes, Alun John and Anushka Trivedi
This News Originally From – The Epoch Times