U.S. stock index futures surged on September 22, 2021, as fears over China’s Evergrande subsided after the property developer managed to negotiate a domestic bond payment deal, with investors. Now, the deal is awaiting policy cues from the Federal Reserve later in the day.
Evergrande’s main unit confirmed that it had negotiated a worthwhile deal with the bondholders to settle interest payments on a domestic bond, which ensured that fears of an impending default were eliminated. If a default happens, it could unleash severe global chaos.
The property developer is Asia’s largest junk bond issuer and it is extensively entangled with China’s wider economy. Its fate has kept global stock and bond markets on tenterhooks as late debt payments might trigger cross-defaults.
Most of the financial institutions in China have exposure to Evergrande via direct loans and indirect holdings, while defaults might also result in severe sell-offs in the high-yield credit market.
To reassure the investors, the People’s Bank of China (PBoC) injected 90 billion yuan into the banking system. This move signals the government’s support for markets as they prepared for what is expected to be one of China’s biggest-ever debt restructurings.
Evergrande is now scrambling to avoid defaulting on several bonds with payments due this week and next week. The company’s main unit, Hengda Real Estate Group, confirmed on Wednesday that it has now ‘resolved’ one coupon payment due on September 23 on its Shenzhen-traded 5.8% September 2025 bond, via “private negotiations”.
The company has not specified the amount of interest that would be paid or when. Also, Hengda did not clarify Evergrande’s other pressing debts. At the time, it left it unclear what it means for $83.5 billion in dollar bond interest payments due on Thursday.
But, with the latest deal on how to repay the domestic bond interests, fears are reducing in the stock markets which are gradually stabilizing from the losses recorded earlier in the week.
The Fed Now In Focus
The S&P 500 has plunged for 10 of the last 12 sessions since it hit record highs, as fears of an Evergrande default increased the seasonally weak trends and saw the investors pull out of stocks trading at lofty valuations.
For now, the focus has shifted to the Fed’s decision that is expected at 2 p.m. ET (1800 GMT) where the bank might introduce its plans to start scaling back on its massive pandemic-related stimulus measures.
A small raft of positive economic data that was seen in recent weeks has now strengthened the expectations for a taper announcement from the central bank by as soon as September. The commodity-linked metal and oil stocks led gains in the premarket trading, while a small surge in Treasury yields supported most of the major banks. But, most of the industries were nursing severe losses in recent sessions.
US S&P 500 E-minis were up 25.5 points, which translates to 0.59% at 06:26 a.m. ET. On their part, Dow E-minis was up 222 points (around 0.66%), with 50,454 contracts changing hands.
The Nasdaq 100 E-minis were up 57.75 points, or about 0.38%. Notably, the Nasdaq fell the least among its peers in recent sessions, as many investors pivoted back into big technology names that had already proven resilient throughout the pandemic.
Among the individual stocks, FedEx Corp (FDX.N) lost 5.8% on posting a lower quarterly profit and the delivery company also cut its full-year earnings projection.