LDN - Business

Stocks extend slide as ECB weighs up taper plan

[September 09, 2021] By Marc Jones

LONDON (Reuters) - World share markets slipped for a third straight day on Thursday as Beijing took another swipe at its big tech firms, while bond markets steeled for European Central Bank signals later about a gradual withdrawal of its stimulus.

Europe's regional STOXX 600 flirted with a six-week low in early trading, while Chinese tech giants Tencent, NetEase and Alibaba had slumped 6%, 7% and 4% respectively overnight after online gaming chiefs were summoned by authorities to check they are sticking to strict new rules for the sector.

Analysts anticipate the ECB will announce a token step towards reducing its emergency economic support later.

The central bank has pulled out all the stops to prop up the euro zone through the coronavirus pandemic, but with inflation at a 10-year high and unemployment falling and as normal life resumes, policymakers are now facing a balancing act.

"The market consensus now is that there will be some ECB tapering (withdrawal of stimulus)," Rabobank senior currency strategist, Jane Foley, said.

Investors had initially been spooked by the idea of tapering, but ECB officials have been working hard in recent weeks to reassure markets that the process will be very gradual.

A Reuters poll expects only a slight slowdown in money printing -- to 70 billion euros a month from the current 80 billion euros -- and this would remain a high pace by historical standards.

"I think now the conclusion is that this will be a pretty dovish Lagarde," Foley added. "Which means the euro can't get a lot of support," even if there is a knee-jerk push higher.

Euro zone bond yields, which reflect governments' borrowing costs and drive lending rates throughout financial markets, were holding near eight-week highs.

Germany's 10-year yield, the benchmark for the bloc, was unchanged at -0.32%. Italy's 10-year yield was up less than a basis point at 0.76% while the euro climbed for the first time in four days to be worth $1.1827. [GVD/EUR]

Graphic: PEPP - https://fingfx.thomsonreuters.com/
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CAUTION! FRAGILE CHINA

Back in the equity markets it wasn't just about the ECB.

The UK's FTSE 100 led Europe's losses with a 1.1% drop. Low-cost airline easyJet tumbled nearly 14% as it tapped shareholders for 1.2 billion pounds ($1.66 billion). The broader travel sector was down 1.8%. [.EU]

MSCI's broadest index of Asia-Pacific shares was last down 1%, which would be its worst daily performance since Aug. 19, the last time markets decided they were worried about the U.S. Federal Reserve tapering its massive asset purchase programme.

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Signage is seen outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls

U.S. stock futures, the S&P 500 e-minis, were down 0.25% after falls from Apple and Facebook on Wednesday and after one of the Federal Reserve's policymakers had urged the central bank to get on with its own stimulus wind-down plans. [.N]

"The global story is looking soft and it's being hit by the Delta variant plus concern about potentially the Fed still moving towards a taper," said Rob Carnell Asia head of research at ING. "It's an unsettling combination of things."

China angst had also played a big part in Asia's declines on Thursday.

Hong Kong was among the biggest fallers shedding 2.02%, dragged down by Chinese tech stocks after Chinese authorities told gaming firms to resolutely curb incorrect tendencies such as focusing "only on money" and "only on traffic".

This hurt companies with large gaming operations, and Tencent fell 6%, Bilibili lost 6.6% and NetEase shed 7.4%.

There was more trouble too for the country's most indebted property giant, Evergrande.

Media reports that the company would suspend some interest payments on loans and payments to its wealth management products hit its shares, which dropped more than 10%. Its Shenzhen-traded January 2023 bond halted after it fell more than 20%.

Korea's Kopsi fell 1.5%, also under pressure from regulatory scrutiny of local tech players. In Korea's case, fintech names such as Kakao Corp , which sank 7.2%, and Naver Corp, down 6.9%, were in the spotlight.

Australia lost nearly 2% after payrolls data showed a sharp drop in jobs in the first half of August.

It was calmer in the commodities markets. Oil prices were steady as production in the U.S. Gulf of Mexico output following Hurricane Ida was slow to come back on line, while aluminium hit a 13-year high partly in response to a coup in Guinea, one of the world's top bauxite producers.

"Political unrest in Guinea has significantly raised the risk of disruption. At the same time, power shortages and environmental measures are restricting output in China," ANZ analysts said in a note.

Graphic: Evergrande's bonds slump on default worries - https://fingfx.thomsonreuters.com/
gfx/mkt/gkplggrbavb/Pasted%20image%201631177390038.png

(Reporting by Marc Jones. Editing by Jane Merriman)

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