Market Commentary

Stocks dip on virus curbs and monetary policy direction; Evergrande labelled as default

• Global stocks dipped in the wake of new restrictions aimed at tackling the spread of the Omicron coronavirus variant along with questions about the direction of monetary policy.

• In the US, tech shares led the way down as the technology focused Nasdaq Composite index closed 1.7% lower, hitting a session low just before the bell. Blue-chip S&P 500 index slipped 0.7%, also hitting session lows near the close. The Dow Jones Industrial Average was essentially flat, as many economically sensitive sectors, like industrials and materials, dropped.

• Weekly US jobless numbers released before the opening bell on Thursday were indicative of a tightening labour market, with first-time filings for unemployment benefits falling to 184,000 in the week to 4 December. It was their lowest level since 1969 and only served to underscore how far behind the Federal Reserve was in terms of normalising policy rates.

It comes ahead of tonight’s US inflation data, which could compel the Fed to remove monetary support from markets and the economy more rapidly should full employment seemingly become a reality.

• News about tighter monetary policy from Europe’s central bank didn’t help markets either. In general, higher bond yields — a likely result of less bond-buying by the European Central Bank and Federal Reserve — are a negative for tech company valuations, which are largely based on a particularly long-term stream of expected profits.

• European equities ended the day lower as the UK has moved to implement its plan B Covid-19 restrictions, including guidance to work from home and mandatory mask-wearing for most indoor venues.

Asian markets were mixed. China’s CSI 300 rose 1.7% after official data showed factory gate inflation slowed in November to 12.9%, from 13.5% the previous month. Hong Kong’s Hang Seng index gained 1.1% as shares of major Chinese tech companies advanced. Shares of Alibaba rose 2.32%, Baidu advanced 1.52%, Meituan added 0.73% and Tencent was up 1.2%.

• Straits Times Index was up 0.41% to 3,142.45 but Tokyo’s Topix fell 0.6% as investors kept an eye on the Omicron variant, which has rattled markets in recent weeks due to its impact on the pace of economic recovery.

Rating agency Fitch on Thursday downgraded Chinese property developer Evergrande’s foreign currency credit ratings to “restricted default”, the latest milestone in a drama likely to end in a massive restructuring. Evergrande had failed to pay two coupons by the end of a grace period on Monday, which could trigger cross defaults on its US$19.2 billion of dollar debt. Fitch also applied the same label to Kaisa. The two firms account for about 15% of outstanding USD bonds sold by Chinese developers.