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Dow futures skid practically 2% Monday as worry of market contagion from China’s Evergrande intensifies


US stock futures fell sharply on Monday, with the Dow Jones Industrial Average plummeting 500 points as Hong Kong-listed property companies came under renewed pressure.

Investors also positioned themselves ahead of the Fed’s Open Market Committee meeting this week.

How does trading in stock futures work?
  • Dow Jones Industrial Average Futures YM00, -1.92%, fell 671 points, or 1.9%, to 33,791 points.

  • S&P 500 Futures ES00, -1.75% fell 78 points, or 1.8%, to 4,343.

  • Nasdaq 100 Futures NQ00, -1.72%, fell 1.7%, or 260 points, to 15,066.

On Friday, the Dow Jones Industrial Average DJIA fell -0.48% 166 points, or 0.5%, to 34,585, the S&P 500 SPX -0.91% 41 points or 0.9% to 4,433, and the Nasdaq Composite COMP, – 0.91% decreased 138 points, or 0.9%, to 15,044.

For the week, the Dow posted its third straight weekly decline, down 0.1% and, according to Dow Jones Market Data, posted its longest weekly losing streak in the four weeks ended September 25, 2020. The S&P 500 fell for a second straight week with losses of 0.6%, while the Nasdaq Composite lost 0.5% and also posted two weekly declines, according to FactSet.

What is driving the market?

Is this the correction some strategists have been expecting?

A downturn in China’s real estate market that suffered heavy losses on Monday, with shares in China Evergrande 3333, -10.24% falling 13% in Hong Kong, threatened to drag stocks sharply.

Mainland China markets were closed for a holiday, but the Hang Seng HSI lost -3.30% over 3%.

Read: Evergrande fears cause the stock market to tumble: This is what investors need to know about the Chinese real estate giant

The 8.25% Evergrande bond, whose interest payments are due this week, traded at around 29 cents a dollar on Monday, according to Reuters.

That said, Wall Street investors are poised to pick up where they left off last week – on a weaker basis.

“The slump is due to a variety of causes, including fading earnings estimates, uncertainty related to a change in monetary policy and instability in the world’s second largest economy as a result of escalating raids,” said Naeem Aslam, chief market analyst at AvaTrade, in a note to clients .

Markets will be paying close attention to any taper talks at the Fed’s two-day monetary policy meeting beginning September 21. looks unsustainable for some given inflation spikes.

However, the economy has given mixed signals amid rising cases of coronavirus due to the Delta variant. Wall Street’s losses on Friday came as a reading of consumer sentiment near roughly a 10-year low.

Analysts also discussed Congress’s past inability to raise the debt ceiling.

“Investors have had a lot to digest lately, [and] The debt crisis in the world’s two largest economies (Evergrande and the US debt ceiling), coupled with uncertainties about the Fed’s decision this week on the timing of its tightening, weighs on market sentiment, ”said Pierre Veyret, technical analyst at ActivTrades.

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