Daily market review

United States

A global move out of risk assets extended into the US hours Monday, with major equities indexes off sharply, as investors shifted into the dollar and US Treasuries, where yields dropped. The Dow Jones industrial average slumped 1.8 percent, the S&P 500 lost 1.7 percent and the NASDAQ fell 2.2 percent. The major indexes saw late buying and ended well up from the day's lows.

Global contagion fears flowed from the rout in Hong Kong shares as China Evergrande, the huge, heavily indebted property developer, appeared poised to default on its debt, and investors worried that Chinese authorities would fail to contain the systemic risks to the Chinese economy and global financial markets. Growth stocks suffered from China's ongoing regulatory crackdown and from threats to the financial system from China Evergrande, which drew parallels to the Lehman collapse of September 2008.

Other negatives included concern over prospects for US infrastructure spending and the approaching US debt ceiling, and expectations the Federal Reserve will signal tapering after its policy meeting Wednesday.

Among stocks, commodities-linked sectors were hit, along with financials, on spillover from China's weakness. Energy stocks dropped with oil prices, with Apache, the driller down 6.1 percent, Hess down 5.2 percent, and Devon Energy down 5.4 percent.

Megacap stocks dragged down the major indexes, with tech, communications services, and consumer discretionary sectors off sharply. Amazon fell 3.1 percent, Apple dropped 2.1 percent, Microsoft lost 1.9 percent, and Google was off 1.7 percent. Tesla lost 3.9 percent. Homebuilders lagged after D.R. Horton, down 3.0 percent, cut its guidance and warned of supply chain trouble and labor shortages.

On the positive side, Pfizer rose 0.7 percent after saying its Covid-19 vaccine works for children aged 5 to 11. US airlines rose on news the US would ease restrictions on travel from Europe for vaccinated people, with American Airlines up 3.0 percent.

These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell 99 cents to US$74.35 while spot gold rose US$12.30 to US$1,1764.25. The US dollar rose vs. most major currencies but not the safe-haven Japanese yen. The US Treasury 30-year bond yield fell 4 basis points to 1.85 percent and the 10-year note yield lost 6 basis points to 1.31 percent.


A batch of negatives including contagion worries flowing from China's property sector pushed equities sharply lower Monday. The Europe-wide STOXX 600 lost 1.7 percent, the German DAX lost 2.3 percent, the French CAC fell by 1.7 percent, and the UK FTSE-100 was down 0.9 percent.

Cyclical/value stocks suffered most from global growth worries flowing from the Delta variant, the threat of central bank tapering, supply chain trouble, and now the China Evergrande affair.

Among the day's weakest sectors were banks, insurance, basic resources, autos & parts, financial services, industrials, and technology. Miners, energy, and banking in particular saw spillover weakness from concern over the Chinese economy and the rout in Hong Kong banking and property shares. Holding up best were health care, food & beverage, utilities, media, and telecom.

Airlines were a bright spot after the US announced it would ease restrictions to allow fully vaccinated European travelers to come to the US. IAG, owner of British Airways, was up 10.3 percent and Lufthansa rose 6.3 percent.

Among companies in focus, Daimler fell 3.2 percent as it suffered from parts shortages. Banco Santander lost 4.3 percent after an analyst downgrade, and Maersk, the giant Danish shipper, fell 4.8 percent after an analyst downgrade. On the positive side, Arecor Therapeutics, the UK biotech, jumped 30 percent, and French biotech OSE Immunotherapeutics gained 19 percent, both on positive results in clinical drug trials.

Asia Pacific

Knock-on effects from the China Evergrande affair pushed Asian equities lower but wider losses were limited by holidays in Mainland China, Japan, Korea and Taiwan, which left Hong Kong and Australia to bear the brunt of the selloff. Dollar strength on the flight from risk and falling commodity prices added to selling pressure.

Hong Kong stocks dropped across the board with property and bank stocks hit hardest after China Evergrande, the heavily indebted property developer, signaled to its creditors it would not be able to make payments, with $84 billion in payments on its dollar bonds due on Thursday. Hong Kong markets reflected concern that the Chinese government is demanding more control over the property sector. On the other hand, investors feared the situation would become China's Lehman moment, with wider contagion effects for China, the global economy and financial markets.

The Hang Seng dropped 3.3 percent, with China Evergrande down another 10 percent. Meanwhile, Henderson Land Development fell 13 percent, and New World Development fell 12 percent on contagion effects and worries over the Chinese government's ongoing crackdown on the property sector, along with other sectors. Banks with exposure to China Evergrande include Agricultural Bank of China, down 4.1 percent, China Minsheng Bank, off 6 percent, and China CITIC Bank down 5.1 percent.

Australian markets dropped nearly across the board on fear of slower growth flowing from losses in China's banking and property sectors. Australia's All Ordinaries lost 2.1 percent, with big miners hit hardest as iron ore and other commodities prices dropped and the US dollar rose on contagion worries. BHP fell 4.1 percent and Rio Tinto lost 3.6 percent. Energy stocks were hit by falling oil and LNG prices. Banks, consumer discretionary, and technology saw sharp losses. Only utilities managed gains.

Indian markets fell on spillover from Chinese market losses. The BSE Sensex was off 0.9 percent and the Nifty lost 1.1 percent, with metals and banking stocks leading the decline.

Looking ahead*

In Asia/Pacific, Reserve Bank of Australia meeting minutes are due for release. In Europe, UK public sector borrowing, UK CBI Industrial Trends, and Swiss merchandise trade reports are scheduled. In North America, US housing starts and permits, and US current account reports are on tap.

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