World shares fall on fears over China, U.S. taxes, central bank policy

September 17, 2021

By Carolyn Cohn

NEW YORK (Reuters) – World shares fell on Friday, pressured by concerns over China’s markets, the potential for a U.S. corporate tax hike and an update on the U.S. Federal Reserve’s tapering strategy next week.

The U.S. 10-year treasury note yield rose to touch a two-month high in early U.S. trade, and the dollar touched a three-week high.

MSCI’s gauge of stocks across the globe shed 0.58%, the pan-European STOXX 600 index lost 0.82%, while MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.13% higher.

Shares in embattled property developer China Evergrande, which has two trillion yuan ($310 billion) in liabilities and faces an $80 million bond coupon payment next week, dropped 30% this week.

The editor-in-chief of state-backed Chinese newspaper Global Times warned Evergrande that it should not bet on a government bailout on the assumption it is “too big to fail”.

“The underlying risk for markets is if Evergrande is not bailed out by the Chinese government,” said Giles Coghlan, chief currency analyst at HYCM, though he added: “I don’t think Evergrande is a Lehman scenario – it’s not going to be a massive systemic risk.”

In the U.S., concerns grew that a potential hike in corporate taxes could eat into earnings as leading Democrats and President Joe Biden sought to raise the top tax rate on corporations to 26.5% from the current 21%.

The Federal Reserve, facing a labor market that may be stalling or on the cusp of a surge, is expected next week to open the door to reducing its monthly bond purchases while tying any actual change to U.S. job growth in September and beyond.

“Historically, the Fed waits for data to take a course of action,” Wade Guenther, partner at Wilshire Phoenix said. “We have seen quite a few months of high inflation data, (and now) we’re waiting for a response.”

The Dow Jones Industrial Average fell 181 points, or 0.52%, to 34,570.32, the S&P 500 lost 33.95 points, or 0.76%, to 4,439.8 and the Nasdaq Composite dropped 153.32 points, or 1.01%, to 15,028.61.

Stock market prices were expected to be erratic on Friday due to “quadruple witching” day, when four different futures and options contracts expire.

The yield on benchmark 10-year Treasury notes was 1.3753%.

The yield on Germany’s 10-year government bond, the benchmark for the euro zone, was at -0.280% after rising as much as 3.5 basis points to a two-month high of -0.277%, after a Financial Times report suggested the European Central Bank expects to hit its 2% inflation target by 2025.

Stronger than expected U.S. retail sales data on Thursday boosted the dollar, which held steady near the previous day’s three-week high against an index of currencies.

The dollar index, a gauge of the greenback’s value against six major currencies, rose to 93.094, its highest since late August. It was last up 0.29%.

The euro fell 0.26% to $1.1733.

Gold was trading at $1,753 per ounce, and U.S. gold futures fell 0.12% to $1,752.50 an ounce. [GOL/]

U.S. crude recently fell 1.32% to $71.65 per barrel and Brent was at $74.89, down 1.03% on the day. [O/R]

(Reporting by Elizabeth Dilts Marshall; Editing by Andrew Heavens)

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