(Bloomberg) – The global equity rout sparked by investor angst over China’s real estate sector and weakening Federal Reserve worsened on Monday, with US stocks falling closest to ‘a year.
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The S&P 500 fell 2.65%, the biggest one-day drop since October 2020, a test for the downward buying mentality as the gauge hits its 100-day moving average. The benchmark is still up around 15% this year. Treasuries gained against the dollar ahead of Wednesday’s Fed meeting, where policymakers are expected to start laying the groundwork to reduce the stimulus.
âIf the market is ripe for a correction, this is the season for one,â said Anne Wickland, portfolio manager at Easterly Investment Partners LLC. âMost of the massive selling seems to be happening at the end of the third quarter, the beginning of the fourth, as investors begin to adjust their future expectations. Evergrande could set the stage for a broader market liquidation. “
The Stoxx Europe 600 index fell 1.7% to a two-month low. Commodities led the widespread pullback, as iron ore slumped below $ 100 a tonne and base metals fell after China tightened restrictions on industrial activity. The German DAX has underperformed as a rebalancing takes effect.
Hong Kong stocks slumped amid the biggest sale of real estate shares in more than a year as traders tracked the risk of contagion from the debt crisis at developer China Evergrande Group, fueling new fears about China’s growth trajectory.
âChina is not investable, not at this point – even at the government level because you really don’t know what protection you’re going to have or what the currency is going to do,â Ed Yardeni, president of Yardeni Research, said in an interview with Bloomberg TV.
In addition to Evergrande and the prospect of a reduction in Fed stimulus measures, financial markets also face risks related to uncertainty over the outlook for President Joe Biden’s $ 4 trillion economic program as well as the need to raise or suspend the US debt ceiling. Investors were already worried about the slowing global recovery from the pandemic and inflation fueled by commodity prices.
âThe edges of the bullish narrative hedge are drawn and the darker underlying reality emerges,â said SÃ©bastien Galy, senior macro strategist at Nordea Investment Funds SA. “It takes longer for the market to assess these shocks than I expected, and the market is much more realistic as the downward buying mentality fades with fear of inflation.”
Treasury Secretary Janet Yellen said the US government would be strapped for cash to pay its bills in October without debt ceiling action, warning of “economic catastrophe” unless lawmakers take action required.
Meanwhile, emerging market equities were heading for their biggest drop in a month, as the Russian ruble and Chilean peso pushed developing country currencies lower. Bitcoin briefly fell below $ 43,000. WTI crude oil extended a decline towards $ 70 a barrel.
Here are the key events to watch this week:
Canadian Federal Election, Monday
Bank of Japan rate decision Wednesday
Federal Reserve rate decision on Wednesday
Bank of England rate decision on Thursday
Fed Chairman Jerome Powell, Fed Governor Michelle Bowman and Vice President Richard Clarida discuss recovery from pandemic on Friday
For more market analysis, read our MLIV blog.
Some of the main movements in the markets:
The S&P 500 fell 2.6% at 2:35 p.m. New York time
The Nasdaq 100 fell 3.1%
The Dow Jones Industrial Average fell 2.6%
The MSCI World index fell by 2.3%
Bloomberg Dollar Spot Index rose 0.2%
The euro was little changed at $ 1.1726
The British pound fell 0.7% to $ 1.3651
The Japanese yen rose 0.5% to 109.35 per dollar
The yield on 10-year treasury bills fell six basis points to 1.31%
German 10-year rate fell four basis points to -0.32%
UK 10-year yield fell five basis points to 0.79%
West Texas Intermediate crude fell 2.2% to $ 70.40 a barrel
Gold futures rose 0.6% to $ 1,762.60 an ounce
More stories like this are available at bloomberg.com
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