Stock Market Selloff Intensifies as Evergrande Crisis Deepens

20 Sep 2021 · 3rd Party Analysis

Stock Market

WRITTEN BY ThorFX

In Summary

  • World shares hit by the uncertainty surrounding Evergrande’s potential collapse
  • European bourses tumble 2% or more, Dow futures plunge almost 500 points

Evergrande Contagion Casts a Shadow Over Global Markets

The financial markets experienced intense selling pressure early on Monday. To kick off a highly important week with the anticipated Federal Reserve meeting, stocks tumbled globally as elevated risks loomed on the horizon.

Shares in Asia slipped broadly with the Hang Seng losing more than 4% at one point as Evergrande’s potential collapse is hanging by a thread.

Evergrande, a large Chinese real estate developer, rose to become one of China’s biggest companies by borrowing over $300bn.

Now the company is struggling to pay off its debt and has even informed banks they will not receive interest payments on loans due this week. Moreover, Evergrande has announced it may not be able to escape its deepening debt problems, which could ultimately lead to its demise.

Shares of Evergrande slipped more than 15% earlier today during the Hong Kong session and are down 84% since the start of the year.

European Stocks Tumble, Dow Futures Plunge 500 Points

Following the stock market slump in Hong Kong, European bourses nosedived on Monday. Major equity gauges in Europe slipped 1.5% or more with the pan-continental Stoxx 600 down about 2%. The CAC40 in Paris declined more than 2.4%, while most other indexes were lower by roughly 2%. UK’s FTSE100 was down 1.5% a few hours into the trading session.

The escalating crisis stemming from the potential default of Evergrande is threatening to hurt the performance of US stocks, too. Indeed, futures contracts tied to the Dow Jones Industrial Average declined throughout most of the pre-market trading activity. At their lowest, Dow futures dropped more than 500 points or about 1.5%.

As Dow futures plunged, S&P500 futures were lower by more than 50 points or 1.2%. In parallel, Nasdaq futures lost about 1% before the bell for the regular trading session on Monday.

Federal Reserve Meeting to be This Week’s Highlight

Besides the looming risks from Evergrande’s debt crisis and the company’s next steps, this week would be defined by a high-pressure Federal Reserve meeting. The US central bank is slated to meet on Tuesday and Wednesday to talk about a potential framework of tapering, or throttling down, its monetary policy.

Since the pandemic began 18 months ago, the Fed has been buying $120bn in Treasuries and mortgage-backed securities each month. The economy has progressed substantially from its lows. As such, Fed officials have begun discussions about unwinding the vast monetary stimulus by the end of the year.

Jerome Powell, the Fed Chairman, has said most of the central bankers at the Federal Reserve think it’s “appropriate” to reduce the monthly support given the economy continues to recover as expected.

The highlight of the week would be on Wednesday when Mr. Powell will present the central bank’s policy statement and hold a press conference in which he will discuss the Fed’s next moves.

Bitcoin, Ether Fall in a Broad-Based Downturn

In other markets, the cryptocurrency space today has been hit. Major digital tokens slid from their opening levels with bitcoin losing about 5% to currently trade near $45,000 per coin. Ether, the second-biggest coin, declined almost 6% to change hands near $3,200 per token.

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