Dow Futures Slump As China Evergrande, Growth Worries Rattle Global Stocks

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The Monday Market Minute

  • Global stocks slide to a one-month low as the fate of China Evergrande adds to market concerns amid slowing growth and rising coronavirus infections in major world economies.
  • Shares in Evergrande slump to a fresh 11-year low as the indebted property developer faces $150 million in coupon payments later this week and Beijing stays silent over a potential last-minute rescue.
  • Investors retreat from risk markets ahead of this week’s Fed meeting, which could wave the starting flag on tapering of the central bank’s $120 billion in monthly bond purchases.
  • More rigs, and a stronger dollar, push U.S. natural gas prices lower Monday, but Europe continues to struggle with supplies heading into the winter months.
  • Stock futures suggest a notably weaker open on Wall Street ahead of the Fed’s two-day policy meeting, which begins tomorrow, as well as housing and jobs data later this week.

U.S. equity futures slumped lower amid the steepest pre-market declines of the year Monday as the twin concerns of slowing growth and accelerating coronavirus infections gripped global markets ahead of a crucial Federal Reserve policy meeting later this week.

China’s recent crackdown on corporate profiteering has also rattled investors both in the Asia region and elsewhere, raising serious concerns over the fate of China Evergrande, which faces a $150 million in bond payments later this week as its shares plunge to the lowest levels in more than a decade and officials in Beijing refuse to commit any rescue cash to the indebted property developer.

The risk of contagion from an Evergrande collapse pulled stocks in Hong Kong more than 5% lower on the Monday session, and pulled global stocks to the lowest levels in more than a month.

Steel and iron ore stocks, for example, fell notably in overnight trading as concerns that a potential Evergrande default could imperial building and growth prospects in the world’s second-largest economy. 

In Europe, banking stocks stocks lead early Monday declines, as investors worried about exposure to both China-based lenders and the broader property development complex in Asia. 

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Further market uncertainties related to the Fed’s plans for tapering the pace of its $120 billion in monthly bond purchases — a move many investors see as the first in a series of steps that will culminate in a 2022 rate hike — as well as the strength of the third quarter earnings season amid increasing issues with the global supply chain are also hanging over stocks heading into the start of Monday trading.

On Wall Street, futures contracts tied to the Dow Jones Industrial Average are indicating a 540 point opening bell slump while those linked to the S&P 500 are priced for a 60 point retreat. Nasdaq Composite futures are set for a 160 point fall even as benchmark 10-year note yields slip to 1.327% in overnight trading.

Pfizer  (PFE) – Get Pfizer Inc. Report shares were a notable pre-market mover, falling 1.9% to $43.05 each advisors to the Food & Drug Administration recommended Friday that Americans over the aged of 65 can receive a third dose of its coronavirus vaccine, but declined to make a similar recommendation for the broader public.

President Joe Biden’s chief medical advisor, Dr. Anthony Fauci, added Sunday that Moderna  (MRNA) – Get Moderna, Inc. Report and Johnson & Johnson  (JNJ) – Get Johnson & Johnson (JNJ) Report are just a few weeks away from having enough data available for the FDA to decide on the suitability of booster shots for their coronavirus vaccines as well.

The risk-averse mood in Asia trading boosted the U.S. dollar, which rose 0.2% to 93.384 against a basket of its global peers. That help take some steam out of energy prices, as well, with WTI crude falling $1.60 from a two-month high $70.37 per barrel.

Natural Gas remained in focus Monday, as well, particularly in Europe, where record high prices are prompting policy responses from London to Berlin as officials worry that further increases could hold back growth prospects — and intensify supply chain disruptions — heading into the winter months.

In the U.S. a stronger dollar as well as modest increase in new drilling rigs — which lifted the total count to an April 2020 high of 512 — pushed natural gas prices down to $5.05 per million British thermal units, a near 10% pullback from last week’s seven-year highs.