A strong corporate earnings season has provided investors with much-needed support in recent weeks as companies showed resilience in the face of supply trembling, rising raw material and labor costs and rising Covid cases.
But the long-standing friction between Washington and Beijing continues to cast a dark shadow over the trading floors, with the two sides locked in an impasse over a range of issues, including Taiwan, national security, technology, trade and Hong Kong.
On Tuesday, the Federal Communications Commission revoked the operating license of the US unit of China Telecom because it “posed significant risks to national security and law enforcement.”
The move came after Donald Trump’s White House ban on other giants, including Huawei and China Mobile.
US-listed Chinese technology companies fell, and their shares in Hong Kong also suffered strong sales, pushing the Hang Seng index down 1.6 percent.
The Hang Seng Tech Index lost more than three percent, with the likes of Tencent, Alibaba, JD.com and XD Inc taking a hit in morning trading.
The move “appears to dampen previous hopes that US-China relations will turn for the better,” said Jun Rong Yeap of IG Asia. It “has cast some doubt on whether further escalation could lead to greater US control over Chinese tech players”.
Most of the rest of Asia was also in the red as a predicted jump in Australian core inflation added to widespread fears about rising world prices that are forcing central banks to tighten the ultra-easy monetary policy at the start of the pandemic.
Downside risks persist
As some countries have already raised interest rates, the UK is expected to follow suit before the end of the year, while the US Federal Reserve is likely to phase out its bond-buying program next month and raise borrowing costs by mid-2022.
Investors hope for clues about the European Central Bank’s plans at its latest meeting on Thursday.
Tokyo, Shanghai, Seoul, Wellington, Bangkok, Manila and Jakarta all fell, although Sydney, Singapore, Taipei and Mumbai rose.
London, Frankfurt and Paris all fell in the morning.
Traders were largely unfazed by new highs for the Dow and S&P 500 on Wall Street.
However, observers remained optimistic that the global recovery, although slowing, will continue to benefit corporate results.
“Downward risks to the economy remain, but investors are choosing to look further afield as companies continue to give us plenty of reasons to be optimistic about what lies ahead,” said OANDA’s Craig Erlam.
Such “enthusiasm can come and go, creating a lot of reciprocal action in the markets,” he added.
Still, Citigroup warned that earnings growth could be nearing its peak.
Oil markets fell but remained around multi-year highs on expectations of rising demand and supply concerns.
Investors are also watching the crisis in China’s real estate sector, with several developers struggling to meet their debt obligations, while industry giant China Evergrande must set a new deadline at the end of the week to avoid bankruptcy.
Authorities called on the company’s chief executive, Xu Jiayin, to dive into his own pocket to alleviate the financial difficulties, reports said.
However, with liabilities over $300 billion and his net worth less than $8 billion, it’s unlikely to make much of a difference.
Key figures around 0810 GMT
Tokyo – Nikkei 225: FLAT at 29,098.24 (close)
Hong Kong – Hang Seng Index: 1.6 percent DOWN at 25,628.74 (close)
Shanghai – Composite: 1.0 percent DOWN at 3,562.31 (close)
London – FTSE 100: 0.1 percent DOWN at 7,273.58
Dollar/yen: DOWN at 113.72 from 114.14 yen at 2040 GMT
Pound/Dollar: DOWN at $1,3750 from $1.3767
Euro/dollar: UP to $1.1605 from $1.1604
Euro/pound: UP at 84.40 pence from 84.26 pence
West Texas Intermediate: 1.6 percent DOWN at $83.26 a barrel
Brent North Sea Crude Oil: 1.3 percent DOWN at $85.24 a barrel
New York – Dow: UP less than 0.1 percent at 35,756.88 (close)