Global stocks fall as Chinese property developer Evergrande’s scramble to avoid default rattles investors

  • Global stocks fell Monday, with Dow futures down 500 points, on concerns about the Evergrande fallout ahead of the Fed meeting this week.
  • Evergrande's Hong-Kong listed shares plunged to an 11-year low as fears grew of a default on $300 billion of debt.
  • Oil dropped as the dollar jumped to a three-week high and as US production gradually returned.
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Global stocks slid Monday as worries over the escalating crisis of Chinese property developer Evergrande sent shares in Chinese and Hong Kong property companies to their lowest levels in half a decade.

Investors are also taking positions ahead of the Federal Reserve's meeting this week, which is expected to shed light on the central bank's timing for cuts to its regular bond purchases.

In the US, Dow Jones stock futures were down than 500 points for a more than 1.4% decline, as of 5:20 a.m. ET. Those on the S&P 500 fell 1.2%, and the Nasdaq lost 1%, suggesting a lower start to trading later in the day.

With mainland China markets closed for a holiday, the impact of worries about Evergrande played out in Hong Kong. The Hang Seng Properties index, which tracks a dozen property developers, fell as much as 6.64% to a 52-week low, while the broader Hang Seng index was 3.87% lower. But trading was thin, as Japan and South Korea were also on holiday alongside China.

Evergrande faces a debt crunch of more than $300 billion. Concerns center on the impact on China's financial system if the country's second-largest property developer defaults on its obligations to banks and bondholders, and whether its demise, if not averted by action by Beijing, could trigger contagion.

The company is due to pay $83.5 million interest on September 23 and another $47.5 million interest payment on September 29 on two bond payments. Both bonds would default if the interest is failed to be settled within 30 days of the scheduled payment date. But the payment is unlikely to be made, according to Deutsche Bank strategists.

Evergrande's Hong Kong-listed shares fell as much as 18.9% on Monday to an 11-year low. Ping An Insurance, China's largest insurer by market value and most exposed to the real estate sector, closed 5% lower.

Investors are also bracing for the Fed's monetary policy decision, due at the end of its two-day meeting on Wednesday. It is the main event among 16 central banks, including the UK and Japan, set to hold meetings this week.

Deutsche Bank's US economists expect Fed Chair Jerome Powell to reiterate that a reduction in the pace of asset purchases is appropriate this year, as long as economic progress remains on track. But given the big August jobs miss and other mixed data released after his last comments, investors are watching for specific details on pace and timing.

On Thursday, the US, eurozone, the UK and other countries will get flash readings on purchasing managers indexes for September, watched for signs of improvement on the deterioration shown in July.

European markets opened lower. Official Destatis data on Monday showed German producer prices for August rose 12% on last year, the biggest annual gain in 45 years.

Frankfurt's DAX fell 2.1%, and the Euro Stoxx 50 lost 2.1%. London's FTSE 100 moved 1.4% lower.

Oil futures extended the prior week's losses as the dollar index jumped 0.2% to a three-week high of 93.39. Oil is facing headwinds from a return of US production in the Gulf of Mexico, previously shut by hurricane impacts, according to Carsten Fritsch, commodity analyst at Commerzbank.

Brent crude was down 1.6% to $74.08 a barrel, and West Texas Intermediate slid 1.4% to $70.39 a barrel.

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