September 21, 2021, | AtoZ Markets–U.S. stocks suffer following investor fears about the health of the world’s leading economy. Global concerns remain key to financial markets. What is the financial world worried about?
It is no secret that in global markets, movements of euphoria or panic are always the great precursors of trend changes. This is when risk aversion sets in. As a result, safe-haven assets start to play a more prominent role.
Likewise, U.S. stocks started the week in the red, with the Dow Jones Industrial Average losing 760 points, or 2.3%, its biggest one-day drop since October 28, 2020.
Several fears worry investors globally and in this article, we will share the most relevant ones at present.
The Fed’s Meeting Promises to Be a Very Important Event
The announcement that the Fed is beginning to discuss when it will start tapering its debt purchase program has global implications. This change affects not only the valuation of US bonds but also currencies and stock markets in emerging and developed countries.
Firstly, it set the interest rate between 0% and 0.25%, to alleviate financing costs. And secondly, it activated a program to buy Treasury bonds and mortgage-backed securities worth 120 billion dollars a month (102 billion euros).
The Fed has already warned that it will not raise rates until at least 2023, but it is debating whether to start tapering debt purchases as early as this year. Some Fed members fear that excessive stimulus has overheated the U.S. economy, driving up prices, and advocate announcing the tapering of bond purchases as early as September.
China’s Real Estate Market Seems to Be Turning into a Global Headache
Investors fear contagion to financial markets from China’s troubled housing market. Hong Kong shares have suffered a sharp decline due to this. The benchmark Hang Seng index slumped 4% as property developer China Evergrande Group is on the brink of bankruptcy.
While some economists reject the hypothesis of a housing bubble in China, we note that the rise in real estate prices has been gradually decoupling from the real wages observed in major Chinese cities.
The exponential growth of bank loans could in particular raise fears that over-indebtedness problems will arise soon for a significant number of real estate developers. However, these difficulties are only the tip of the iceberg of deeper problems in the Chinese economy.
After expanding rapidly for years and snapping up assets as China’s economy boomed, Evergrande is now preoccupied with a crushing debt of $300 billion.
Evergrande said its property sales will likely continue to drop significantly in September after declining for months. Making its cash flow situation even direr. The Chinese developer is so huge that the fallout from a potential failure could hurt not only the Chinese economy but spread to markets beyond.
The United States Worries Investors
Covid-19 cases due to the delta variant remain at elevated levels as a period of colder weather approaches in North America. September is a month that is known as the black month in the financial markets. History shows that selling tends to pick up in the second half of the month. For the month, the Dow Jones is off 3.9%. The S&P 500 is lower by 3.7% and the Nasdaq Composite has fallen 3.6%.
Investors are concerned about the deadline for raising the debt ceiling. Congress must pass the funding bill to avoid a government shutdown. Figures on the U.S. economy also have investors on edge. Inflation remains very high and growth does not appear to be strong enough to bring about a sustainable recovery in the economy.
Also, Fed Chair, Jerome Powell will hold a press conference Wednesday after the two-day meeting. Powell has said the so-called tapering could occur this year, but investors are waiting for more specifics, particularly after mixed economic data released since Powell’s last comments.
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