Hideyuki Sanno

TOKYO (Reuters – Asian shares dropped Monday on worries about China’s property and inflation. This was despite positive U.S. data, and news of new anti-coronavirus drugs.

After China Evergrande missed its second interest payment last week, trading in China Evergrande shares was stopped.

The biggest problem isn’t Evergrande defaulting, but rather the environment which has caused its demise. The authorities are tightening regulations on housing loans and the lending of property to firms. “Markets are searching for an Evergrande already,” stated Kazutakakubo, Okasan Securities senior economist.

Evergrande’s troubles are increasing in danger of spreading to all Chinese properties.

The broadest MSCI index of Asia-Pacific shares, which is not based in Japan, fell 0.3%. It was its sixth quarter’s first quarterly decline.

Hong Kong saw the largest decline at 1.9% in the. Gains earlier made are now 1.4% less at the 28375 level.

The Chinese mainland markets are closed on Thursday due to the National Day holiday. South Korean markets were also closed Monday.

The broadest measure of global shares in MSCI, ACWI, fell 0.1% to 7011.92. This is not too far from Friday’s low of 705.27.

Investor sentiment got a lift on Friday after Merck & Co said an experimental oral antiviral treatment could halve the chances of dying or being hospitalised for those most at risk of contracting severe COVID-19.

U.S. economic data from Friday revealed a variety of positive indicators, including increased consumer spending and an increase in factory activity. However, there was also high inflation.

The data published Friday showed that the euro zone’s inflation reached a thirteen-year peak last month. It is likely to rise even higher.

Investors are concerned that global inflation will persist beyond what they expect, due to a continuing rise in commodity prices, ongoing supply disruptions, and despite Fed Chair Jerome Powell’s assertions that high inflation was temporary.

Core U.S. PCE Price Index, which is the Federal Reserve’s preferred inflation measure to achieve its flexible 2% target for inflation, rose 3.6% in August compared with a year ago, marking its largest increase in 30 years and equaling July’s gain.

According to Norihiro Fujito (NYSE:), chief investment strategist for Mitsubishi UFJ, “Powell has remained true to his message that inflation is temporary, but he recently started to hedge his comments, leading investors and to suspect he too is concerned about inflation.” Morgan Stanley Securities.

Inflation fears could cause the Federal Reserve’s to push back its timeline. U.S. bonds yields have risen last week due to expectations.

As month-end buying supports bond prices, yields have fallen from their multi-month peak last week.

It was at 1.460% on Tuesday, compared to the 1.567% three-month peak.

The dollar was also affected by lower yields from the United States. From Thursday’s $1.1563 low, the euro recovered to $1.1608, after a bounce back.

U.S. currency fell to 111.00yen. This is below the 1 1/2 year high of 1112.08yen on Thursday.

The oil prices remain elevated with futures remaining just short of the three-year high reached late last month. That was because it is expected that oil producers countries will increase supply gradually when they meet this Monday.

Brent futures fell 0.3% to $78.99 per barrel in early trading.