Market Close Sep 21

Asian bourses drop as coronavirus surge bodes ill for economy

Threat of more lockdowns worries investors; HSBC falls to 25-year low on scandal; US still far from agreeing on new stimulus package

Asian bourses drop as coronavirus surge bodes ill for economy
Shares in HSBC Group fell to a 25-year low in Hong Kong trading after the British banking groups were named in a money-laundering scandal over the weekend. File photo from earlier this year by AFP.

(ATF) Asian stocks fell on Monday as increasing coronavirus infections around the world stoked concern that more economy-sapping lockdowns are on the horizon.

Markets opened lower in Europe too as hopes of more stimulus from the US dimmed. Shares in HSBC Group fell to a 25-year low with those of Standard Chartered in Hong Kong trading after the British banking groups were named in a money-laundering scandal over the weekend.

The dollar slipped 0.1% against a basket of major currencies and eased 0.2% versus the yen. The euro climbed 0.16% against the greenback, while the pound was up 0.25%.

"While the economic recovery continues, momentum is clearly slowing," Kathy Bostjancic, chief US financial economist at Oxford Economics, wrote in a note. "The second phase of the recovery will likely be bumpy and fraught with pitfalls. The development of the pandemic remains the overriding factor driving the economy, discussions on the fiscal policy, and ultra loose policy by the Fed.”

After months of big gains around the world, fuelled by government stimulus and central bank largesse, equities are beginning to wobble, with analysts warning traders were taking profits as they consider the rally may have been overblown.

A key worry is a spike in new virus cases in key economies that have led to containment measures being reimposed.

Britain's government, noting hospitalisation rates are doubling every eight days, said fresh restrictions could be put in place across England, with several cities already seeing some measures. The US, meanwhile, is approaching 200,000 fatalities.

"Investors remain confused about which way to move... as lockdown fears take charge with the UK government sounding alarm bells as the Covid-19 curve moves in the wrong direction," AxiCorp's Stephen Innes said. "After the initial economic bounce from full-blown lockdowns, both the UK and Europe's economic trajectory could be entering a gloomy second phase characterised by ongoing social distancing, elevated unemployment, and increasing damage to the supply side.”

Hong Kong led losses, dropping 1.5% with market heavyweight HSBC tumbling around 4% to a 25-year low on fears it could be added to a Chinese list of firms deemed a threat to national security and following news it had been accused of allowing fraudulent activity to go unpunished.

Shanghai, Sydney, Seoul, Taipei, Wellington and Jakarta were also well down, with smaller losses in Singapore, though Manila, Mumbai and Bangkok were marginally higher.

Investors are keeping an eye on Capitol Hill where US lawmakers are still nowhere near agreeing on a new rescue package for the beleaguered economy, despite millions of Americans struggling to make ends meet.

Stand-off in Washington

While President Donald Trump has urged Republicans to lift their $500 billion offer, they remain miles apart from the Democrats, who are calling for around $2 trillion to be spent.

Federal Reserve boss Jerome Powell has warned that while the central bank can keep interest rates low and provide financial support to businesses, the economy needs a shot in the arm from Congress to get its recovery back on track.

"Elevated equity valuation probably also means that investors have become a bit more sensitive to uncertainty," National Australia Bank's Rodrigo Catril said. "So on this score we have to add the US elections early in November, plus the Fed's decision to refrain from increasing its bond buying at the September FOMC meeting... and the continued stalemate in negotiations over a new fiscal package.”

Traders will be closely watching congressional testimony by Powell later in the week for fresh clues about the Fed's future policy plans.

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Asia Stocks

Hong Kong’s Hang Seng Index fell 1.5%

China’s CSI3000 lost 0.6%

Japan’s Nikkei 225 was closed for a holiday

Australia’s S&P ASX 200 lost 0.7%

Stock of the Day

HSBC shares in Hong Kong fell as much as 4.4%, their lowest level since May 1995 after it was accused, along with several other major global banks, of moving large sums of illicit money for many years, in spite of warnings.

With additional reporting by Reuters and AFP