Dow Jones plunges more than 700 points as Chinese real estate giant Evergrande teeters on the brink of collapse with debts of more than $300 BILLION and firm threatens top execs with 'severe punishment'
Wall Street's main indexes plunged more than 700 points on Monday as Chinese real estate giant Evergrande teetered on the brink of collapse with debts of more than $300 billion.
It also comes as concerns about the pace of an economic recovery hit energy and banking shares at the start of a week in which the Federal Reserve will decide on potentially tapering its pandemic-era stimulus.
Stocks are opened broadly lower on Wall Street following declines overseas and extending a weak patch that has brought the U.S. market down over the past two weeks.
By midday the Dow Jones had fallen fell 717 points. The S&P 500 was down 1.3% in the early going. The benchmark index hasn't had a decline of more than 1% since mid-August.
Hong Kong's main index dropped 3.3%, its biggest loss since July, over worries about ripple effects from the severe troubles of the debt-laden Chinese real estate company Evergrande.
China's second largest property developer, Evergrande, is facing a default on its debt burden of about $300 billion - a crisis the echose the Lehman Brothers bankruptcy.
The Dow slipped more than 717 points by midday on Monday
This aerial photo taken on September 17, 2021 shows the halted under-construction Evergrande Cultural Tourism City, a mixed-used residential-retail-entertainment development, in Taicang, Suzhou city
However, Ed Yardeni, president of Yardeni Research, told CNBC that it is unlikely Evergrande will have as severe a fallout as the Lehman bankruptcy which caused global and economy credit markets to collapse.
'If it's similar to anything, it's similar to Long-Term Capital Management, which is the calamity that occurred in 1998 but that was dealt with very quickly by the Federal Reserve and the major banks and it didn't have any global implications,' Yardeni told CNBC's 'Trading Nation' on Friday.
'The reality is it is too big to fail, and I think the Chinese government is going to intervene big time. I don't think they're going to save management… but it will be restructured and in a way that won't harm the economy too much over there and won't affect the global economy or financial markets the way Lehman did,' said Yardeni.
European markets were also down about 2%. The yield on the 10-year Treasury dropped to 1.32% as investors turned to lower-risk assets.
Global stock markets are falling sharply Monday, with the Hong Kong exchange having its biggest loss since July and some markets in Europe seeing their steepest declines in nearly a year. Futures for the S&P 500 were down 1.8%.
Investors are watching to see whether the Federal Reserve will take any action to address the impact of rising prices on businesses and consumers.
Stocks in the US linked to global growth were down the most Monday. Ford and Carrier Global lost more than 3%. General Motors and Boeing fell about 2% each. Nucor steel shed 2.8%, according to CNBC.
Energy stocks tumbled as WTI crude oil fell 2% on concerns about the global economy. Occidental Petroleum, Hess and Devon Energy were among the biggest losers.
Bond prices gained as investors sought safety. The move pushed the 10-year Treasury yield down by 4 basis points to 1.329%.
Big bank stocks took a hit as the falling rates may crimp profits. Bank of America and JPMorgan Chase were each down more than 2%.
A woman walks past a bank's electronic board showing the Hong Kong share index at Hong Kong Stock Exchange in Hong Kong Monday. Hong Kong's main index dropped 3.3%, its biggest loss since July, over worries about ripple effects from the severe troubles of the debt-laden Chinese real estate company Evergrande. China's second largest property developer, Evergrande, is facing a default on its debt burden of about $300 billion - a crisis the echose the Lehman Brothers bankruptcy
Investors in Hong Kong were concerned by financial problems in the Chinese property market.
Many markets in Asia were closed for holidays and analysts said the thin trading accentuated volatility. Hong Kong´s benchmark sank 3.3%. Germany´s DAX dropped 2.9% to 15,038.17 and the CAC 40 in Paris shed 2.7% to 6,393.04. if both indexes close at those levels, it will mark their steepest declines since last October.
Worries are mounting, also, about the U.S. debt ceiling. House Democrats said Friday they planned to move this week to suspend the cap on the government´s borrowing authority, and the White House ratcheted up pressure on Republicans by warning state and local governments that severe cuts lie ahead if the measure fails in the Senate.
Futures for the Dow industrials gave up 2% and futures for the Russell 2000 index of small companies dropped 2.6%.
The yield on the 10-year Treasury note slipped to 1.31% from 1.38% on Friday, another sign investors are turning to safer investments.
Heavyweight Hong Kong property companies and banks lost ground on persisting concerns over the potential for ripple effects from the financial troubles of Chinese developer Evergrande.
The company was expected to miss interest payments, as ratings companies forecast it may default on its debt. Its shares fell 10.6% on Monday.
Henderson Land Development dropped 13% and New World Development lost 12% amid reports that China would tighten oversight over the property sector in Hong Kong.
The Fed is due to deliver its latest economic and interest rate policy update on Wednesday. The central bank has said higher costs for raw materials and consumer goods are still likely to be temporary as the economy recovers, but analysts worry that higher prices could stick around and dent companies´ bottom lines while also crimping spending.
Wall Street ended last week on a feeble note, with the S&P 500 index losing 0.9% to 4,432.99, its second straight weekly loss.
In other trading on Monday, U.S. benchmark crude oil lost 2.6% to $69.97 per barrel in electronic trading on the New York Mercantile Exchange.
Brent crude, the standard for international pricing, lost 2.3% to $73.66 per barrel.
No comments