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The earth shook in Melbourne this morning, but the tremors wracking financial markets subsided following reports China’s troubled Evergrande property group will avoid default tomorrow.
The market reversed early falls after news wires reported Evergrande will make interest payments tomorrow, as scheduled. Fears of a default had rattled financial markets over the last two weeks.
The S&P/ASX 200 flipped a 32-point opening loss into a mid-session gain of 47 points or 0.65 per cent.
Gains in Woodside Petroleum, the miners and CSL helped offset a mixed morning for the banks. Westpac fell after it was forced to abandon plans to offload its PNG and Fiji businesses to Kina Securities.
What’s driving the market
Investors breathed a sigh of relief after Reuters reported Evergrande would make coupon payments on onshore bonds due tomorrow. The prospect of a default with knock-on effects contributed to heavy falls on both sides of the Pacific this week. While the developer’s problems appear far from over, markets were happy to see the can kicked down the road.
US futures turned positive and Asian markets trimmed falls. Oil added to gains. Cryptocurrencies rallied. The dollar bounced 0.24 per cent to 72.46 US cents.
The Asia Dow trimmed its loss to 0.37 per cent and Japan’s Nikkei to 0.62 per cent. S&P 500 futures inched up a point or less than 0.1 per cent.
Trade in Hong Kong, where Evergrande is listed, was suspended for a holiday. The Shanghai Composite index declined 0.65 per cent as traders played catch-up with two days of turmoil while China’s markets were closed. The People’s Bank of China injected additional liquidity this morning to help calm market jitters.
Overnight, the Dow and S&P 500 faded to losses of 0.1-0.2 per cent as traders awaited the outcome of two “risk events”: the Evergrande repayments and tonight’s Federal Reserve policy update.
“All eyes are now glued to the results of the Federal Reserve’s policy meeting, due tonight, which is expected to provide clues on the timeline of tapering monetary stimulus,” Kalkine Group CEO Kunal Sawhney said.
“Speculations are rife that the central bank can start tapering asset purchases this year amid the surge in inflation to multi-year highs. Any reduction in bond purchases by the central bank can reduce liquidity in the global markets, paving the way for a potential rise in interest rates.
“Having said that, it will not be surprising to see the central bank pushing back expectations for the taper timeline, considering sombre economic data amid virus concerns. Disappointing jobs report and consumer confidence data for August 2021 show that the pandemic has slammed the brakes on the American economy.”
Going up
The major miners led the rally as the prospect of a major blow to demand from China’s real estate sector appeared to diminish. Fortescue Metals climbed 5.36 per cent, Rio Tinto 2.83 per cent and BHP 2.69 per cent.
A jump in crude lifted the energy majors. Brent crude climbed 41 US cents or 0.55 per cent to US$74.77 a barrel. Woodside Petroleum rallied 3.01 per cent to a five-week high. Beach Energy gained 5.35 per cent, Oil Search 2.26 per cent and Santos 1.7 per cent.
Besides Beach, the morning’s best performers were Champion Iron +6.75 per cent, Sims +6.49 per cent and Regis Resources +5.47 per cent. Worley gained 5.23 per cent and Clinuvel 5.17 per cent.
AGL rallied 3.62 per cent after reaffirming its full-year outlook. Chair Peter Botten told today’s AGM the company expects earnings of $220-$340 million. The company intends to split its operations into a retail business and an electricity generator.
Z1P Co improved 3.37 per cent off an eight-month low on news the BNPL firm had established a foothold in the Indian market. Z1P will invest US$50 million in ZestMoney, a “leading Indian BNPL operator”. ZestMoney has 11 million registered users, more than 10,000 online merchants and a presence in at least 75,000 physical stores.
Going down
Westpac dropped 0.66 per cent after formally terminating agreements to sell its Pacific businesses to Kina Securities after the PNG regulator blocked the sale. The bank said it will continue to operate the businesses while it assesses other exit options. The proposed sale was intended to simplify the bank’s business model. Kina Securities rallied 4.73 per cent.
A mixed session for the rest of the banks saw NAB fall 0.33 per cent and CBA 0.09 per cent. ANZ firmed 0.48 per cent.
Virtus Health were flat after the Australian Competition and Consumer Commission announced plans to review the fertility services company’s acquisition of Adora Fertility and three day hospitals from Healius. Virtus said it would work with the regulator but did not expect the timing of the sale to change. Healius shares rose 0.91 per cent.
Fintech Douugh fell 5.06 per cent to an 11-month low on plans to list on the OTCBQ Venture market in the US. The firm said the listing will give it access to a deeper pool of retail and institutional investors.
Adbri fell 0.45 per cent as it traded ex-dividend.
