Fears of a real estate market crisis are growing again in China. ECB, following the Fed, plans to keep rates as long as possible

By JustMarkets

At yesterday’s close of the stock market, the Dow Jones Index (US30) increased by 0.13%, while the S&P 500 Index (US500) added 0.40%. The NASDAQ Technology Index (US100) closed positive by 0.45% on Monday. The 10-year bond yield rose to 4.523%, the highest since 2007. The hawkish attitude of the Fed representatives is also yielding results. In the current environment, risk assets (euro, British pound, stock indices) are likely to remain under pressure while the US dollar will continue to rise.

Fears of a US government shutdown continue to grow as Congress has yet to pass any spending bills needed to fund the government beyond October 1. Rating agency Moody’s said that while a US government shutdown would negatively impact the country’s creditworthiness, the economic impact would be short-term.

Amazon.com Inc (AMZN) said it will invest up to $4 billion in Anthropic, a company that develops generative artificial intelligence technologies, including chatbots based on large language models, such as ChatGPT, for Amazon Web Services customers. Alphabet Inc Class A (GOOGL) also owns about 10% of Anthropic after investing $300 million earlier this year.

Equity markets in Europe were mostly down on Monday. Germany’s DAX (DE40) decreased by 0.98%, France’s CAC 40 (FR40) fell by 0.85% yesterday, Spain’s IBEX 35 (ES35) lost 1.22%, and the UK’s FTSE 100 (UK100) closed down by 0.78%.

Germany’s IFO business climate index for September fell by 0.1 to 85.7, the lowest level in five months. According to analysts, Europe’s leading economy is at risk of a second recession in a year.

ECB spokesman Villeroy made several statements yesterday:

• The ECB has growing confidence in achieving the 2% target by 2025;
• The ECB should focus on persistence rather than raising rates;
• There is also a risk of easing monetary policy too early.

So, the ECB is following in the steps of the US Fed and plans to keep rates high as long as possible. But if economic data starts to deteriorate sharply, policymakers are prepared to consider cutting rates if necessary.

The rally in the dollar index, which reached a 6-month high on Monday, depressed energy prices. And gasoline prices fell to a 3-week low. Crude oil prices were also falling due to concerns that the worsening debt crisis in China will worsen the Chinese economy and energy demand. However, oil price losses were limited by expectations that global oil supplies would remain tight.

Asian markets traded flat on Monday. Japan’s Nikkei 225 (JP225) added 0.85% for the day, China’s FTSE China A50 (CHA50) decreased by 0.67%, Hong Kong’s Hang Seng (HK50) lost 1.82%, and Australia’s ASX 200 (AU200) was positive 0.11% on Monday.

Economists have growing fears that a worsening real estate crisis in China will undermine the country’s economy. On Sunday, China Evergrande Group canceled a meeting with creditors and said it should review its restructuring plan. In addition, China Oceanwide Holdings Ltd. said it faces liquidation after a Bermuda court ordered the company into liquidation for defaulting on a $175 million loan principal payment. There are also growing fears that China Country Garden Holdings may default after breaching initial interest payment deadlines on dollar bonds.

The Japanese government the other day promised to issue a new economic package to “ease the pain of inflation,” which, paradoxically, is still “below target levels,” according to the Bank of Japan. The package will include measures to protect the Japanese from cost inflation (energy and product subsidies), support for wage and income growth (wages and salaries are also costs and demand inflation), support for investment to stimulate growth, measures to counter population decline, and encourage infrastructure investment.

S&P 500 (F)(US500) 4,337.51 +17.45 (+0.40%)

Dow Jones (US30) 34,007.21 +43.37 (+0.13%)

DAX (DE40)  15,405.49 −151.80 (−0.98%)

FTSE 100 (UK100) 7,623.99 −59.92 (−0.78%)

USD Index  105.96 +0.37 (+0.35%)

• – US FOMC Member Kashkari Speaks at 01:00 (GMT+3);
• – US CB Consumer Confidence (m/m) at 17:00 (GMT+3);
• – US New Home Sales (m/m) at 17:00 (GMT+3);
• – US FOMC Member Bowman Speaks at 20:30 (GMT+3).

By JustMarkets

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.