Effects of Evergrande’s Liquidation on the Chinese Property Market
The court-ordered liquidation of Evergrande Group has significantly unsettled investors, who are concerned about its ramifications for China’s fragile property market. While Hong Kong’s Hang Seng index saw gains on Monday, driven by energy stocks, it declined 1.4% on Tuesday, heading for a 7% drop in January. The Hang Seng mainland properties index also fell by 3%. Similarly, China stocks trended downwards by 0.69%, seemingly extending towards a 4% monthly decline.
Vasu Menon, the Managing Director of Investment Strategy at OCBC Bank in Singapore, noted, “The latest development is a reminder of the risks of investing in the Chinese real estate sector and the challenges that the sector faces on the road to recovery.”
Market Focus on Megacap Earnings and Central Bank Announcements
The Wall Street market experienced gains, with the S&P 500 achieving yet another record high close. Alongside this, investors eagerly await a series of megacap earnings announcements later this week, including Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) on Tuesday. The focus of the week, however, remains on the Federal Reserve’s policy meeting and the subsequent commentary from Chair Jerome Powell.
Market players will also keep an eye on European inflation data, Bank of England policy meetings, and the upcoming U.S. employment report, searching for indications about the future direction of the markets. Gary Dugan, CIO at Dalma Capital, anticipates that the Fed will signal that while interest rates may have peaked, the central bank is not in a rush to lower them. This comes in contrast to the surprising dovish tilt the Fed displayed in December, projecting 75 basis points of interest rate cuts in 2024.
Market Reassessment and Currency Considerations
In recent months, robust economic data, persistent inflation, and dissenting opinions from central bankers have prompted a significant reassessment of market expectations. Currently, the market reflects a 47% chance of a Fed rate cut in March, a decrease from 88% a month earlier, as indicated by the CME FedWatch tool. Furthermore, traders now expect 134 basis points of cuts throughout the year, compared to the previous estimate of 160 basis points of easing.
Regarding currencies, the dollar index, which measures the U.S. currency against six major counterparts, remained steady at 103.43. In contrast, the euro inched away from a seven-week low of $1.07955, trading at $1.0833. Market participants adjusted their expectations of when the European Central Bank will commence interest rate cuts, influencing the euro’s movement.