A stock sell-off eased on Tuesday as traders weighed the risks of China’s clampdown on real estate and looked toward this week’s Federal Reserve meeting. Yields on Treasuries rose.
The Stoxx Europe 600 Index advanced 0.6% at the open, recovering from the biggest drop in two months. US futures were up, suggesting some improvement in sentiment. Falling buyers in the last hour of trading helped the S&P 500 cut some losses on Monday, although the index still posted the biggest drop since May.
A Hong Kong gauge of real estate firms leveled off after developers disputed a pressure report from the Chinese government. China Evergrande Group sank further into equity and credit markets. Concerns remain about broader contagion after S&P Global Ratings said the developer is on the brink of default. Markets in China reopen on Wednesday after the holidays.
Treasuries cut an advance and the dollar was stable. Aside from concerns about Evergrande’s ability to enforce the $ 300 billion of liabilities, Wednesday’s Federal Reserve meeting is also looming. Policy makers are expected to begin laying the groundwork for reducing stimulus.
The turmoil in China’s real estate sector, part of President Xi Jinping’s broader crackdown on private industries under his “common prosperity” initiative to reduce inequality, adds to the risks investors face. These include stretched stock valuations and a slower economic reopening due to the strain from the delta virus amid price pressures fueled by commodities. Markets are also assimilating an outlook of less support for central bank policies.
“Markets are clearly concerned about the potential after-effects from Evergrande, along with some nervousness about the September FOMC meeting,” said Cliff Hodge, chief investment officer at Cornerstone Wealth. “We have been in the field that we are behind for a correction, something in the range of 5% to 10% which is an affordable retracement. At the moment, we are not worried about a market crash. The Fed and Evergrande are not new. ”
Elsewhere, Bitcoin slipped into volatile trading for a third day, dropping as much as 7.6% before recovering above $ 42,000.
In Canada, Prime Minister Justin Trudeau won a third term in a snap election, but failed to regain a parliamentary majority. The nation’s currency was among the top performers in the Group of 10 basket.
Here are the key events to watch this week:
- Bank of Japan rate decision, Wednesday
- Federal Reserve rate decision, Wednesday
- Bank of England rate decision, Thursday
- Fed Chairman Jerome Powell, Fed Governor Michelle Bowman, and Vice President Richard Clarida discuss recovery from the pandemic, Friday
Some of the main movements in the markets:
- The Stoxx Europe 600 was up 0.6% at 8:11 am London time
- S&P 500 futures rose 0.6%
- Nasdaq 100 futures rose 0.5%
- Dow Jones Industrial Average futures rose 0.8%
- The MSCI Asia Pacific Index fell 0.6%
- The MSCI emerging markets index fell 0.2%
- The Bloomberg Dollar Spot Index was little changed
- The euro changed little to $ 1.1730
- The Japanese yen fell 0.2% to 109.61 per dollar
- The offshore yuan rose 0.1% to 6.4761 per dollar.
- The British pound rose 0.1% to $ 1.3672
- The 10-year Treasury yield advanced two basis points to 1.33%.
- Germany’s 10-year yield advanced one basis point to -0.31%
- UK 10-year yield advanced two basis points to 0.81%
- Brent crude rose 1.3% to $ 74.87 a barrel
- Spot gold fell 0.1% to $ 1,761.66 an ounce
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