Wall St. sinks amid fears of Evergrande contagion in China and US debt policy
Shares plunged on Monday, with major indices falling more than 1% at the opening bell, as investors nervously watched the potential spillover effects of a major Chinese real estate company’s default, as well as the debates. current on debt limit in Washington.
After defying gravity for most of the summer, September is shaping up to be a tough month for the markets, with major benchmarks retreating for three straight weeks. At the Wall Street opening bell, the Dow Jones fell more than 500 points, while the S&P 500 also fell nearly 70 points, adding to losses last week. The CBOE volatility index, or Vix (^ VIX), jumped more than 15% to its highest since August, as a confluence of risks disrupted markets.
Shares of China Evergrande Group (3333.HK) plunged more than 10% on the Hong Kong Stock Exchange as fears mounted that the Chinese real estate juggernaut would collapse under a heavy debt burden, affecting markets. shareholders, bondholders and potentially triggering unrest elsewhere in the markets. The specter of a broader crackdown by the Chinese government on Hong Kong’s real estate sector has further heightened concerns.
“While the Evergrande situation is in the foreground, the reality is that stock valuations are exaggerated and the market has benefited from too long a pause from volatility and Monday’s stock declines are not surprising “said David Bahnsen, chief investment officer at Wealth. management company The Bahnsen Group, with more than $ 3 billion in assets under management.
Meanwhile, heated debates in Washington over increasing the government’s borrowing limit have leaned on the risk-averse tone of the markets. U.S. Treasury Secretary Janet Yellen called on Congress to raise the U.S. debt ceiling again in a Wall Street Journal op-ed, and suggested doing otherwise would risk leaving the government in default and generating debt. “generalized economic catastrophe”.
The US House is due to vote this week on the debt ceiling and an interim spending measure to keep the government in business beyond the end of the fiscal year to the end of September.
Even before Monday’s session, all three major U.S. stock indexes had fallen so far in September amid growing concerns about the Delta variant, the pace of the economic recovery, inflation and the way forward for the economy. monetary and fiscal policy. Retail sales data last week suggests consumers are turning to spending on goods rather than services amid the latest coronavirus wave, and still weak data on consumer sentiment suggests many people are increasingly concerned about inflationary pressures.
And on the monetary policy front, the prospect of a near-term shift to showcase ultra-accommodative Fed policy has also injected additional uncertainty into the markets. The Federal Open Market Committee is expected to hold its two-day policy-making meeting on Tuesday and Wednesday, the event culminating with a new monetary policy statement, an update on economic projections and a press conference by the president of the Federal Reserve, Jerome Powell.
One of the main goals of this week’s meeting will be whether the Federal Reserve will step up its signals when it begins to scale back its crisis asset purchase program. The central bank has suggested that this quantitative easing – which currently includes purchases of $ 120 billion per month of treasury bills and mortgage-backed securities – would begin once the economy makes “substantial progress” towards the Fed’s inflation and employment targets.
“While we readily admit that the committee may make changes to the September statement to signal that the reduction is approaching, we believe the low impression of August hiring and the recent increase in COVID cases have added enough ‘Uncertainty about the economic outlook that would prevent officials from making substantial comments on wording changes,’ Sam Bullard, senior economist at Wells Fargo, wrote in a note Sunday.
“If economic data improves sufficiently over the next few weeks, Fed officials could use public comments throughout October to signal that the reduction will begin in November,” he added.
For investors, the Fed’s decision to gradually reduce its duration will be closely watched as asset purchases have been one of the main tools used by the central bank to bolster liquidity and support economic recovery during the pandemic. , and by extension helped support the rise in equities to record levels.
While stocks have lost some of their momentum in September so far, some strategists believe the move may be temporary.
“You have to look at where the congestion is, and right now there are so many negative feelings about the market. That’s why we bought this drop this week and told our customers that we think that the market setup is perfect for a fairly big rally for the rest of September and maybe early October, ”Eddie Ghabour, Managing Partner of Key Advisors, Yahoo Finance told Yahoo on Friday. “The next big hurdle we need to get over is the Fed meeting on Wednesday. If the Fed doesn’t disappoint, I think it’s a risky rally … markets don’t crash when everyone is positioned for that.”
10:23 a.m.ET: US makes international travel easier
President Biden announced that the United States will open the country in November to international travelers, provided they are vaccinated against COVID-19.
White House COVID-19 coordinator Jeff Zients said foreign travelers to the United States will need to show proof of vaccination before boarding, as well as proof of a negative COVID-19 test taken within three days of the flight. Under the new policy, unvaccinated U.S. citizens will need to be tested the day before they leave the United States as well as upon their return.
10 a.m. ET: Homebuilder confidence rebounds
US single-family homebuilders regained confidence in September, after three months of decline. The National Association of Home Builders / Wells Fargo Housing Market Index rose by one point to 76, a reading of over 50 indicates more builders consider conditions good instead of bad.
Homebuilder confidence hit an all-time high of 90 in November 2020, when the COVID-19 pandemic and low interest rates prompted people to buy homes, in some cases larger homes due to the Work at home. But soaring lumber prices, labor shortages and supply chain issues have sapped homebuilders’ confidence this year.
“As challenges with building materials persist, the rate of cost growth has slowed for some products, but the rate of job vacancies in construction tends to increase,” said Robert Dietz, economist Chief of the NAHB, in a press release.
Monday at 9:30 a.m. ET: stocks tumble at the opening bell
Here are the main moves in the markets at 9:30 a.m. ET:
S&P 500 (^ GSPC): 4,359.72, -73.27 (-1.65%)
Dow (^ DJI): 34,040.24, -544.64 (-1.57%)
Nasdaq (^ IXIC): 14,748.46, -295.51 (-1.96%)
Raw (CL = F): $ 70.84 per barrel, – $ 1.13 (-1.57%)
Gold (CG = F): $ 1,759.10 per ounce, + 7.70 (+ 0.44%)
10-year cash flow (^ TNX): -5.0 bps for a yield of 1.319%
6:57 a.m. ET Monday: Stock futures plunge, Dow Jones loses more than 500 points
Here are the main movements on the markets as of Monday morning:
S&P 500 Futures Contracts (ES = F): -56.75 points (-1.28%) to 4,365.00
Dow Futures (YM = F): -541 points (-1.57%) to 34,921.00
Nasdaq Futures (NQ = F): -152.25 points (-0.99%) to 15,173.75
Raw (CL = F): $ -1.43 (-1.99%) to $ 70.54 per barrel
Gold (CG = F): + $ 8.20 (+ 0.47%) to $ 1,759.60 per ounce
10-year cash flow (^ TNX): -3.9 bp for a yield of 1.331%