SINGAPORE (Reuters) – Shares found support and US futures rose with relief on Wednesday after faltering developer China Evergrande said it would pay bond interest due Thursday, allaying fears of an impending collapse and messy that had scared investors.
The news also helped the risk-sensitive Aussie dollar, although anticipation that the Federal Reserve could move closer to cut later on Wednesday limited gains and mood.
Markets in Taiwan and China reopened lower after a two-day hiatus, catching up with a sharp drop globally triggered by concerns over Evergrande’s predicament, but quickly cut losses as the promise to pay boosted the mood.
The largest MSCI index of Asia-Pacific stocks outside of Japan was down 0.3% by mid-morning. Japan’s Nikkei fell 0.6%, while Australian stocks rose 0.7%. Hong Kong markets have been closed for a public holiday.
Futures on the S&P 500 reversed an early loss to trade slightly higher after Evergrande pledged to pay the expected coupon on a yuan bond due on Thursday. Safe-haven assets such as the yen and treasury bills were also sold after the announcement.
Evergrande still has to pay $ 83.5 million in interest on a separate dollar bond, but the signal that it at least has cash available to creditors seems to have encouraged investors.
“It’s a bit reassuring,” said Ryan Felsman, senior economist at CommSec brokerage. âWe can definitely see some improvement in terms of volatilityâ¦ it looks like we’re going to see a little rally in risk,â he said.
Globally, markets had also already started to calm down, with analysts downplaying the threat that Evergrande’s problems could turn into a “Lehman moment” and trigger a financial crisis.
Overnight on Wall Street, the S&P 500 fared roughly flat, sitting about 4% below a record high reached earlier in the month. [.N]
Evergrande’s distress has already spread to other Chinese developers, but investors now anticipate that the global fallout may be contained and concerns are turning to worrisome but more gradual economic consequences.
“(The) Evergrande debacle further fuels concerns about the fallout from expanding repression in China,” Rabobank analysts said in a note to clients, highlighting new rules on everything from online gaming to developer debt levels.
“As a result, Evergrande can perhaps be seen not as a potential crisis trigger, but rather as a symptom of a broader policy shift that threatens Chinese growth as politics dominate economic considerations.”
In currency markets, the Australian dollar jumped 0.3% to $ 0.7253 after the Evergrande news and the yen made small early gains on the euro and dollar. [FRX/]
However, moves were capped ahead of Wednesday’s Fed meeting and the dollar was firm at $ 1.1727 against the euro. The 10-year US Treasury yield hit 1.3450% after a morning low of 1.3140%. [US/]
Most analysts believe the Fed will not go into the details of its reduction plans, but say the risks lie in the “dot plot” of board members’ rate projections.
“Even if a cutback announcement is not expected, the dot plot can create a belligerent surprise and force Powell to be accommodating and postpone the press conference,” said Tapas Strickland, director of economics and markets at the National Australia Bank.
The outcome of the Fed meeting is announced at 6:00 p.m. GMT with a press conference half an hour later.
In commodities, copper hovered near a month’s low and oil prices found support from a loosening of inbound travel rules, which could boost airline fuel demand. [MET/L][O/R]
Brent crude futures rose 0.9% to $ 75.02 a barrel and US crude rose 1% to $ 71.18. Gold was supported at $ 1,776 an ounce. [GOL/]
Reporting by Tom Westbrook in Singapore and Anushka Trivedi in Bengaluru; edited by Richard Pullin and Sam Holmes