Hello and welcome to our continued coverage of the global economy, financial markets, euro area and business.
The liquidity crunch in Evergrande, China’s second-largest real estate developer, is weighing on market sentiment today, with soaring energy prices also raising concerns among investors.
Evergrande, who has total liabilities of over $ 300 billion, scrambles to raise funds as he oscillates between a messy collapse with wide-ranging impacts, a managed collapse or a government bailout.
And today, Evergrande’s onshore unit halted trading in all bonds after a domestic rating downgrade placed it among the country’s riskiest issuers.
Fears over Evergrande’s ability to repay investors have grown in recent weeks, sparked protests and created anxiety over the implications of a collapse.
Chinese authorities yesterday told Evergrande’s major lenders not to expect any interest payments due next week on bank loans, bringing the cash-strapped developer closer to one of the biggest restructurings in the world. debt of the country.
And earlier today, Evergrande’s main unit, Hengda Real Estate Group Co Ltd, requested a suspension from trading in its onshore corporate bonds, following the downgrading of credit rating agencies. rating. China Chengxin International (CCXI) and S&P – and increasingly nervous exchanges.
Hendga’s onshore corporate bond trading suspension indicates an increasing likelihood of defaults and restructuring, market participants said.
A bond trader, who declined to be identified, said changes in the trading mechanism were likely to limit participation and curb volatility.
“Many companies would adjust the mechanism for trading their bonds before default,” he said.
The crisis is hitting stocks in the real estate sector, at a time when the housing sector in China already appears to be slowing.
China’s CSI 300 the stock market index fell almost 1% today, with Jeffrey Halley, Senior Market Analyst, Asia-Pacific, OANDA reporting that Evergrande “weighs on sentiment”.
The Evergrande saga, with its $ 300 billion in liabilities, is coming to an end with EverTeflon running out of non-stick material. I can see that the mother of all debt / equity swaps is being “encouraged” by the government, but in the meantime the combination of the toxic cocktail described above will weigh on Chinese equities.
As I said before, buying the dip is a perilous business in China right now.
Purchasing energy is also becoming a difficult task, with wholesale gas and electricity prices reaching record highs in recent days.
The shutdown of one of Britain’s most important electric cables importing electricity from France after a fire exacerbated UK supply shortages and record market prices.
These record prices will drive up energy costs for businesses – dragging down profitability – and will also hit consumers next year once bills rise accordingly.
More seriously, these record prices are also forcing some factories to shut down, suggesting that the energy crisis could affect economic growth, as we are only in the fall …
United Kingdom SteeI Managing Director Gareth Stace said some steel plants have already been forced to suspend operations.
“These exorbitant prices force some UK steelmakers to suspend operations during periods when the cost of energy is in the thousands per megawatt hour; last year prices were around £ 50 per megawatt hour.
Even with such a vibrant global steel market, these sky-high prices make it impossible to profitably manufacture steel at certain times of the day and night.
Jim reid, a strategist at Deutsche Bank, told his clients this morning that:
The [are] growing concerns in the UK as a cable bringing electricity from France has been destroyed by fire, which will put it out of use until at least October 13, possibly until 2022 for full capacity.
Restricted supplies that have not been replenished as much as expected after a cold winter are partly to blame, but there is also a lack of options for coal as an increasing number of plants are phased out and Russia has sent less. of supplies in Europe than expected.
Investors are also watching the latest US retail sales figures, which will show whether the Delta variant hit consumer spending in America last month.
European stock markets are expected to open higher with the FTSE 100 called up 0.2%.
- 7 a.m. BST: new car registrations in the euro zone for August
- 9:30 a.m. BST: UK economic indicators in real time from the ONS
- 10 a.m. BST: Eurozone trace balance for July
- 1:30 p.m. BST: US weekly unemployment figures
- 1:30 p.m. BST: US retail sales for August