Dubai: The last week of the third quarter is expected to be choppy for markets after global stocks swung big since the last weekend.
The month of September, which has historically been a volatile one for investors, is expected to end this week on a turbulent note.
US equity indices posted some of the greatest single-day gains and losses in months and the churn seems unlikely to let up as lawmakers face a major deadline to approve new federal funding by Thursday (September 30) to avoid a shutdown.
Markets eye recovery signs
Meanwhile markets will continue to look for signs of ongoing recovery in the global economy as US durable goods and Chinese manufacturing figures are the key events next week.
Global stocks fell Friday, with investors on edge as uncertainty surrounded the Evergrande debt crunch situation, while government bond yields rose after the US Federal Reserve hinted interest rates could rise quicker than expected.
The concerns around a debt default by the troubled Chinese property giant were simmering again Friday as it was unclear whether Evergrande had missed its Thursday deadline to make a crucial $83 million bond interest payment.
China’s troubles mount
Bondholders have not been paid nor heard from the company, people familiar with the situation told Reuters. There has been no response from Evergrande either. It has over $300 billion in liabilities.
Evergrande has a 30-day grace period to meet the $83 million obligation. If it doesn’t pay by then, it will be in default. The size of the property developer means a default could pose risks to China’s financial system, which could then spread elsewhere in the world.
Evergrande’s shares closed 12 per cent lower in Hong Kong on Friday, with the Hang Seng falling 1.5 per cent and the Shanghai Composite dropping 0.8 per cent. Tokyo’s Nikkei rose 2.06 per cent as traders returned from a holiday.
US government bonds drop
At the same time, prices for US government bonds dropped Friday as investors grew increasingly hopeful that the US central bank will raise interest rates sooner than previously expected. The Fed’s outlook released Wednesday showed half of the officials expect the first rate hike to arrive next year.
The yield on the 10-year Treasury note added 13 basis points to 1.43 per cent early Friday, marking a two-month high and the biggest daily increase since February 25. Yield on the 30-year Treasury bond put on 9 basis points to reach 1.93 per cent. Yields move inversely to prices.
However, nervousness eased around the Evergrande crisis after an injection of $18.6 billion by the China’s central bank in the banking system and the above mentioned US Fed meet outcome.
Indian stocks hit record high
In India, it was a historic week for the market as the benchmark indices scaled fresh record highs. The BSE Sensex surpassed the 60,000 level and managed to hold it at close, led by tech, capital goods, energy and select auto stocks.
The Indian rupee slipped slightly to close at 73.68 against the US dollar on Friday, following weaker Asian peers against the greenback.
The Indian rupee opened weaker this Friday against the dollar, after benchmark US yields reached their highest level in more than two months on anticipated withdrawal of policy support.
Rupee to feel market pressure?
The Indian rupee can come under pressure as emerging market currencies face headwinds because of the events surrounding Evergrande in China, a report by HDFC Bank economists said on Wednesday.
The lesser than expected correction in Chinese shares is a short term breather for the markets, the report added further, adding they continue to remain cautious.
We remain cautious over this turning into a broader risk-off scenario, which could mean increased pressure on emerging market currencies, including the rupee, while the dollar remains bid, it said.