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  06 Oct 2021, 12:13

Asian markets slip as inflation, default compound virus worries

  HONG KONG, Oct 6, 2021 (BSS/AFP) - Asian markets resumed their retreat
Wednesday as a strong lead from Wall Street was overshadowed by ongoing
worries about a range of issues from rising inflation, tighter monetary
policy, a possible US debt default and the ever-present threat of the Delta
variant.

  The rally enjoyed across equities for more than a year has met a roadblock
in recent months as supply chain problems and a surge in energy prices caused
by a recovery in demand has led to a sustained spike in inflation.

  That has put increasing pressure on central banks around the world to wind
in the ultra-loose monetary policies put in place last year to battle the
impact of the pandemic and which have been key to the rebound in the global
economy as well as markets.

  And investors are not happy, with some now warning that continuously high
prices combined with signs that global growth is slowing could lead to a
period of stagflation.

  The Federal Reserve is widely expected to soon announce it will begin
cutting back its massive bond-buying programme, with interest rates possibly
rising as soon as next year, while other central banks have also hinted at
moves soon or have already acted.

  On Wednesday, the Reserve Bank of New Zealand announced a first rate rise
in seven years, joining the banks of South Korea and Norway.

  A healthy study showing a forecast-beating improvement in the US services
sector in September added to the argument for the Fed to act.

  "The survey revealed business activity and new orders continued to rise at
a solid pace in September, pointing to the US economy's solid resilience
notwithstanding the Delta Covid wave and supporting the view the Fed will
likely announce a... tapering plan at its next meeting early in November,"
said National Australia Bank's Rodrigo Catril.

  Wall Street's three main indexes rallied Tuesday, the day after suffering a
painful rout but Asia was unable to follow suit.

  Tokyo, Hong Kong and Seoul fell around one percent with Sydney, Wellington
and Taipei also in the red.

  Singapore, Manila and Jakarta posted gains. Shanghai remained closed until
Friday for a holiday.

  - Credit rating warning -

  And there were warnings of more fluctuations to come.

  "For the last five or six months we've entered a period of kind of a mini-
cycle in the US where you've got a changing Fed regime, and we are at the
extended end of a recovery," Kieran Calder, of Union Bancaire Privee, told
Bloomberg Television.

  "It leaves the market vulnerable to external shocks and increased
volatility."

  Crude edged higher but was stable after shooting up more than four percent
to multi-year highs in the past two days after OPEC and other major producers
refused to lift output despite the rally in prices and concerns about the
impact on inflation.

  "The group is clearly concerned about the potential hit to demand in the
coming months if Covid wreaks havoc once more and restrictions are
reimposed," said OANDA's Craig Erlam.

  Democratic Senate leader Chuck Schumer warned of a US credit rating
downgrade if lawmakers fail to raise the debt ceiling, with the country in
danger of a catastrophic default.

  "Unfortunately, sadly and confoundingly, too many Republicans seem proud of
this moment where they're pushing us to the edge of default, and possible
downgrade," Schumer told a news conference.

  "Even now, the credit rating agencies are saying there's a possibility of
downgrade way before the 18th, which would cost American consumers, American
businesses, the American economy, a lot. After the last downgrade, there were
lasting effects for years."

  The crisis at Chinese developer Evergrande continues to cast a shadow as
the firm drowns in a sea of debt worth more than $300 billion and struggling
to find the money to stay afloat.

  While many observers have said they do not see the issue causing a major
threat to the global economy, the potential impact its collapse could have on
China's crucial property sector is still a huge cause for concern.

  "Evergrande is a long way from being contained, quite the opposite, in
fact," warned OANDA's Erlam. "Trading remains suspended on Evergrande's
shares, while other developers are now falling victim to the crunch.

  "This is only starting to unravel and while there is clearly a massive
effort occurring in the background to raise funds to repay investors and keep
projects moving, there is an enormous amount of damage limitation still to
do."

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