Wall Street gets the jitters over China’s Evergrande debt crisis fears

September 21, 2021 - 1 month ago
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September is living up to its historical reputation as being the worst month as ‘stock markets’ volatility started to heat up after Wall Street’s main indexes fell sharply on Monday.

Concerns about the pace of the global recovery weighed on sensitive stocks in the economy in a week the U.S. Federal Reserve may decide to scale back its pandemic-era stimulus plan.

In other news reports, growing concerns over China’s second-largest builder and land developer Evergrande Group could default on billions of debt, a scenario that would have ripple effects across the economy.

Evergrande Group is the most debt-laden property developer globally, with liabilities in excess of $300 billion.

This month, it sounded the alarm that it could not keep up with its obligations to lenders, investors and suppliers.

Construction on many of its projects has halted and, amid a wider debt crackdown in Beijing, concerns are mounting that the company’s failure could spark a broader crisis in the real estate market, a key engine of China’s economy.

Some experts have compared the distress of Evergrande to the fall of Lehman Brothers in 2008, one of the largest casualties in the global financial crisis.

At the finishing bell, on the New York Stock Exchange (NYSE), the broad-based Standard & Poor’s 500 Index, which notched back-to-back losses the past two weeks, dropped -75.26 points, or -1.70%, to settle at 4,357.73.

Ten of the 11 largest sectors of the Standard & Poor’s Index fell in this session, with Industrial, Financial and Energy-exposed stocks fell between -1.6% and -3.2%.

The blue-chip Dow Jones Industrial Average fell as much as -971 points in afternoon trading before paring back its losses and ended down -614.41 points, or -1.78%, and settled at 33,970.47.

Meanwhile, the rich-tech Nasdaq Composite Index pulled back even further, falling -2.19%, or -330.1 points, to end at 14,713.9.

Tech giants like Microsoft, Alphabet, Amazon.com, Apple, and Tesla tend to outperform their peers in times of economic uncertainty, made between -0.6% and -2.8%.

On Monday, Bitcoin suffered a sharp fall after dropping more than -9% to trade near $US40,067 and is currently trading at $US41,800 (as of writing).

Yields on 10-year Treasury notes slipped to 1.308% from 1.369% Friday as bond prices rose, recording their biggest one-day yield decline since Aug. 13.

In other news, Treasury Secretary Janet L. Yellen has called on Congress to raise the federal debt ceiling as Republican lawmakers refuse to help avert a financial crisis. Democrats and Republicans on Capitol Hill face many urgent fiscal challenges, including the potential for a shutdown, a legal limit on Washington’s ability to rack up debts, and disaster relief funding.

Looking ahead to this week’s economic data, the U.S. Federal Open Markets Committee’s (FOMC) begins their two-day policy meeting Tuesday ahead of its policy announcement on Wednesday afternoon (Thursday 4 am Sydney time).

Eyes will be on what U.S. Fed Chair Jerome Powell says at a post-meeting news conference Wednesday, especially concerning inflation, economic growth, interest rates and when the Fed will likely start reducing its purchases of government bonds.

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