Markets Swing as Traders Weigh Inflation Surge, Evergrande Report

Fears about surging inflation dogged investor confidence in Asia on Thursday, though sentiment was boosted by a report saying teetering Chinese property giant Evergrande had for a third time avoided a default with a last-minute payment of bond interest totalling $148 million.

US investors ran for cover and the dollar soared after a forecast-beating read on the consumer price index, which hit a 31-year high last month, putting fresh pressure on the Federal Reserve to act to prevent inflation from running out of control.

The surge – which came a day after a report showing producer prices accelerating – was fanned by a spike in the cost of items such as gasoline, autos and food prices, and ramped up expectations the central bank will be forced to tighten monetary policy quicker than hoped.

While Fed officials insist the jump will be temporary as the global economy slowly returns to a semblance of normality next year, observers warned the pain could continue for some time.

“Details in the report revealed a broad-based rise in prices, challenging the notion that higher inflation is just a function of transitory factors,” National Australia Bank’s Rodrigo Catril said.

“On top of the several specials from the second quarter reappearing (cars, holidays, etc), rents are trending higher and history shows that once rents get going the trend doesn’t reverse very quickly. Meanwhile, labour costs are also rising.”

And Sarah House at Wells Fargo & Co warned: “We’re going to see the inflation picture get worse before it gets better.”

All three main indexes on Wall Street, which started the week posting fresh records, sank into the red for a second successive day.

However, in Asia, the mood was a little lighter after news that China Evergrande had stumped up the cash for the interest on bonds due by the end of Wednesday averting a default again, having met two previous deadlines, and slightly easing concerns about its imminent collapse.

Adding to the positive vibe were reports that Chinese authorities were planning to ease some restrictions on developers’ financing, which could give them more leeway to borrow cash to finish projects and raise much-needed cash.

Optimistic outlook

However, Evergrande’s payments were only made after a 30-day grace period that kicked in when it failed to meet its initial deadlines.

And analysts said the outlook for the firm, which is drowning in more than $300 billion of debt, remained uncertain and fears lingered about a spillover into the Chinese or even global economy.

Hong Kong reversed early selling to add 1%, with Evergrande surging 6.8%, while Shanghai climbed more than 1%.

Tokyo, Singapore, Wellington, Jakarta and Bangkok were in positive territory. Sydney, Seoul, Singapore, Taipei, Mumbai, Jakarta and Manila all fell.

London dipped after data showed the United Kingdom’s economy expanded 1.3% in the third quarter. Paris and Frankfurt were also lower.

Despite ongoing concerns about the outlook, market analyst Louis Navellier remained upbeat.

“Bottom line is that the massive liquidity that has been injected into the capital markets by central banks continues to lift all boats, and stocks continue to possess the best fundamental story with solid earnings, a vibrant IPO market and even many solid dividend plays,” he said.

“If inflation is not going to worry investors, what will?”

The dollar held its gains from Wednesday on expectations for higher US interest rates next year, while bitcoin hovered just below $64,900, having clocked another record high of $68,991 as investors increasingly eye the cryptocurrency as a hedge against inflation.

In Hong Kong, Alibaba rose 1.2% as it held its latest “Singles’ Day” online sales event.

However, it was a much mode sedate affair compared with previous years. There was hardly any of the razzmatazz it has become known for, with China’s e-commerce giants chastened by a government crackdown on platforms.

Chinese consumers’ demand for smartphone-enabled bargain-hunting has seen the day dwarf the pre-Christmas “Black Friday” promotion in the United States, with Alibaba and rival JD.com reporting combined sales of more than $100 billion in 2020.

But there were no rolling tallies or triumphant comments by executives from major platforms as of Thursday morning, and state media have described a quieter event this year in the wake of Beijing’s campaign to rein in Big Tech.