The first day of trading this week on Wall Street is marked by a crisis at Chinese real estate giant Evergrande and the Federal Reserve’s interest rate meeting on Wednesday. – I think people were waiting for an excuse to sell shares, says chief economist Harald Magnus Andreassen.
Wall Street closed with a sharp decline. This is happening after a global stock market crash, caused, among other things, by the crisis at the Evergrande housing company.
Here’s what it looks like at the close of trading on Wall Street on Monday night:
- Dow Jones down 1.78 percent
- Nasdaq down 2.19 percent
- S&P 500 down 1.7 percent
Infectious stock market crash
On Monday morning, the Hong Kong stock market fell as much as four percent. The crash also hit Europe, and the Oslo Stock Exchange was heading for its worst day so far this year. The price of bitcoin has also fallen throughout the day.
The stock market crash is related to crisis-hit Chinese home developer Evergrande, and it fears the company’s debt problems will spill over into the Chinese economy. Evergrande is the second largest home developer in China and is on top of the world with a debt of more than 2.6 billion crowns. writes Bloomberg.
The home developer’s stake has fallen nearly 84 percent this year and fell another 10 percent on Monday.
– There is fear that growth in China will stall and that we will face a debt crisis and a liquidity crisis in the Chinese economy, and lower demand for raw materials, Nordnet investment economist Mads Johannesen told E24 early Monday.
The Evergrande crisis briefly explained
It can affect the world economy
Why does this affect Wall Street and the stock markets around the world?
Chief Economist Harald Magnus Andreassen of Sparebank 1 Markets points to three factors:
1) Investors around the world are concerned that the Chinese economy will deteriorate. The housing industry is a big part of the Chinese economy. If it falls sharply, it will affect all markets in the world, such as steel, aluminum and other raw materials. Therefore, it can affect the growth of the world economy.
2) The Evergrande crisis can cause a kind of contagion effect, where other companies from other countries may withdraw from the housing industry.
3) Many have sat on the edge of the chair because they have realized that stock prices are now abnormally high relative to earnings. And in such a situation, it only takes one “sunspot”, which is Evergrande in this case, to make people doubt whether the stock market is holding that high for so long.
In other words, the Evergrande crisis could be the last straw.
– I also think that people were waiting for an apology, a kind of trigger or an opportunity to sell shares, says Andreassen.
– What do you think will happen next week?
– It’s completely impossible to tell. But it could be the start of something else, because stock prices have gone up a lot and are very high, he says.
The decline is increasing on the Oslo Stock Exchange
Storbank fears a 20 percent drop in the stock market
The strategists at big bank Morgen Stanley believe that today’s stock market crash could be the beginning of what they call a “worst of cases». They point out that today’s drop could lead to a 20 percent stock market drop.
This will depend on what the US Federal Reserve decides at its interest rate meeting this week. The result arrives on Wednesday.
Several are concerned about whether, and to what extent, the central bank will give any signs of a reduction in virus crisis measures. The background is high inflation and signs of improvement in the US job market.
– Fed is easily intimidated. If the financial market goes bad, it is possible that they will maintain the accelerator in the increase of interest rates, says Andreassen.
Fall and September are considered an uncertain month for the world’s stock markets. according to CNBC shows the story that Wall Street sales are picking up in the last half of the month.
Some investors believe that the global stock market crash we are seeing now is completely normal.
– The reason for the fall this morning is the same as last week: problems in China (Evergrande, regulations and the coronavirus), the Federal Reserve and possible tax increases, says Tom Essaye, founder of the market analysis company Sevens Report, according to CNBC.
However, he believes that nothing that happened over the weekend can justify the drop we see today in the stock markets.