New York joins market retreat over Evergrande concerns

The global stock rout sparked by investor angst over China’s real-estate sector and Federal Reserve tapering worsened on Monday, with US. stocks falling more than 1 per cent and European equities tumbling the most in almost a year.

The SandP 500, down 1.4 per cent, fell the most on an intraday basis since July, a test for the buy-the-dip mentality as the gauge jabs at its 50-day moving average. Treasuries gained along with the dollar before Wednesday’s Fed meeting, where policy makers are expected to start laying the groundwork for paring stimulus.

Restrictions

The Stoxx Europe 600 index dropped more than 2 per cent to a two-month low, on track for the biggest decline since October, 2020. Raw materials led the broad-based retreat as iron ore extended a slump below $100 a ton and base metals declined after China stepped up restrictions on industrial activity. Germany’s DAX underperformed as a rebalancing takes effect.

Hong Kong shares slumped amid the biggest selloff in property stocks in more than a year as traders tracked the risk of contagion from the debt crisis at developer China Evergrande Group, which is fueling new fears about China’s growth path.

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Aside from Evergrande and the prospect of reduced Fed stimulus, financial markets also face risks from uncertainty over the outlook for US president Joe Biden’s $4 trillion (€3.4 trillion) economic agenda as well as the need to raise or suspend the US debt ceiling.

Investors were already fretting over a slowing global recovery from the pandemic and inflation stoked by commodity prices.

“The edges of the bullish narrative cover are being pulled and the darker underlying reality is coming to the fore,” said Sebastien Galy, a senior macro strategist at Nordea Investment Funds SA. “It is taking the market more time to price in these shocks than I had expected, and the market is far more realistic as the buy-on-dip mentality fades with the fear of inflation.”

Bills

Treasury secretary Janet Yellen said the US government will run out of money to pay its bills sometime in October without action on the debt ceiling, warning of “economic catastrophe” unless lawmakers take the necessary steps.

Meanwhile, emerging-market stocks headed for their biggest drop in a month, while Russia’s ruble and Chile’s peso led developing-nation currency declines. Bitcoin fell below $43,000. WTI crude oil extended a drop toward $70 a barrel.