Wall Street is set for a cautious recovery Tuesday, in line with global stocks that inched higher, after Monday brought the largest losses in months.
Futures for the Dow Jones Industrial Average pointed up 300 points after the index plunged 614 points Monday to close at 33,970—the steepest loss since July. Futures for the S&P 500 and Nasdaq indicated a similarly strong open after those indexes marked their largest one-day declines since May.
Overseas, Tokyo’s Nikkei 225 fell 2.2%, as Japanese traders returned from a Monday holiday to find volatility in markets, but Hong Kong’s Hang Seng Index rose 0.6% to bounce off five-year lows seen in the previous session. The pan-European Stoxx 600 rose 0.8%.
Investors fretted in the last trading session over the implications of the potential failure of China Evergrande Group (3333.H.K.)—the world’s most indebted property developer.
Fears over what could come out of the looming collapse of Evergrande continue to make markets uneasy, but investors will have to wait until Wednesday, when Chinese exchanges come back online, to see the next major update.
“That has effectively left the world hanging over Evergrande, with no apparent solution to their $300 billion debt pile, ratings agencies cutting and slashing credit ratings faster than Freddy Krueger did with teenagers, an interest payment due on Thursday they probably won’t pay, and no sign from the government that they are inclined to let Evergrande crash and burn or will engineer a bailout,” said Jeffrey Halley, an analyst at broker Oanda.
Meanwhile, a key meeting from the U.S. Federal Reserve’s monetary policy-making committee—the Federal Open Market Committee—gets under way Tuesday, before Fed Chair Jerome Powell is due to give a statement Wednesday. Officials will also update projections of future interest rates and inflation.
Investors are closely watching the Fed for clues as to how and when the central bank will begin slowing, or tapering, its Covid-19 pandemic-era program of monthly asset purchases, which add liquidity to markets.
Indications that a taper will come sooner rather than later could cause markets to wobble even more in the current environment, as broader fears persist.
“The market rout we’re seeing is reflecting a wider set of risks than just Chinese property, and comes after increasing questions have been asked about whether current valuations could still be justified, with talk of a potential correction picking up,” said Jim Reid, a strategist at Deutsche Bank.
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