Global stock markets fall amid problems with Evergrande and expectations of the QE program reduction

by JustForex

Monday, September 20, was the worst day for the US market in almost a year. At the stock market’s close, the Dow Jones decreased by 1.78% to a 1-month low, the S&P 500 decreased by 1.70%, and the NASDAQ lost 2.19%. The sell-off was triggered by investor concerns about the possible bankruptcy of Evergrande, China’s largest real estate developer, and expectations of a reduction in the Federal Reserve’s stimulus programs. Also, the VIX volatility index, also known as the fear index, reached a maximum of four months. Morgan Stanley analysts warn that they do not exclude the chances of the S&P 500 to correct by 20% or more.

The debt problems of Chinese real estate developer Evergrande Group have raised strong concerns among investors worldwide. The company has accumulated more than $300 billion in debt and acknowledged the possibility of defaulting on its debt last week. Market fears are also associated with the fact that Beijing’s actions will lead to a drop in real estate values in mainland China and Hong Kong.

European and Asian markets also fell on Monday. The British FTSE 100 index decreased by 0.9% (to a two-month low), the German DAX lost 2.3% (its lowest level since May 19), and the French CAC 40 decreased by 1.7% (to a two-week low). Spain’s IBEX 35 lost 2.6%, and Italy’s FTSE MIB decreased by 1.2%. Europe’s banking sector and automaker stocks collapsed yesterday. Energy problems in Europe aggravate the situation, which is likely to strengthen inflation dynamics in the near future. Fears of life insurance company bankruptcies are growing in Germany. 20 out of 80 life insurers are under tighter supervision of the BaFin financial regulator.

Oil prices are rising slowly amid signals of supply shortages in the US. Analysts at ANZ say global companies are switching to fuel oil because of rising natural gas and coal prices and ongoing shutdowns in the Gulf of Mexico after Hurricane Ida. It indicates reduced supplies.

Precious metal prices have not changed much for the last session.

Japanese and Hong Kong stock markets are trading in a bearish trend, while Australia’s ASX200 index is rising after a Reserve Bank of Australia meeting. The regulator left its key rate at a record low but approved a plan to cut stimulus starting from November 2021. South Korea’s and mainland China exchanges are closed due to holidays. The New Zealand dollar fell after the central bank’s assistant governor mentioned a possible 50 basis point interest rate hike next month. The Chinese yuan fell to a one-month low, while the US dollar and Japanese yen remained a safe haven for investors.

Canadian Prime Minister Justin Trudeau is close to winning the election, but Trudeau’s party will likely lose the fight for a parliamentary majority.

The White House says that the ban on UK and EU travelers to the US will be lifted in November. The UK Prime Minister Boris Johnson welcomed this step.

Main market quotes:

S&P 500 (F) 4,357.73 −75.26 (−1.70%)

Dow Jones 33,970.47 −614.41 (−1.78%)

DAX 15,132.06 −358.11 (−2.31%)

FTSE 100 6,903.91 −59.73 (−0.86%)

USD Index 93.24 +0.05 (+0.05%)

• – RBA Meeting Minutes at 04:30 (GMT+3);
• – US Building Permits (m/m) at 15:30 (GMT+3).

by JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.