MARKET WRAPS

Stocks:

European stocks slumped Monday, declining on fears over China's struggling property sector as well as the Chinese effort to rein in commodity prices.

The broad retreat came amid concerns over property developer China Evergrande Group. Market participants increasingly believe that Beijing will let Evergrande fail and inflict losses on its shareholders and bondholders. The company's debt burden is the biggest for any publicly traded real estate management or development company in the world.

Shares of Evergrande, which said Sept. 13 it was facing unprecedented difficulties, tumbled 12% in Hong Kong to their lowest level in a decade. The city's Hang Seng Index slid by 3.4%. Mainland Chinese markets were closed for a holiday.

"Everyone is looking at Evergrande and saying 'has the time come for a major default in that area, and then the potential for contagion into the broader property sector?'" said Edward Park, chief investment officer at Brooks Macdonald. "It's an imminent risk now rather than being a theoretical risk as it has been for the past few years."

Other factors weighing on markets Monday included a natural-gas shortage in Europe that has prompted the U.K. government to hold emergency talks with energy suppliers, Mr. Park said.

Shares on the move:

Prudential lost 5.9% in London after the insurer said it planned to raise 22.49 billion Hong Kong dollars, equivalent to around $2.9 billion, by issuing new shares.

The biggest Stoxx 600 gainer was Deutsche Lufthansa which rose 4% after announcing a EUR2.1 billion stock sale to repay its bailout.

The continued rout in iron-ore futures sent miners including Anglo American and Rio Tinto sharply lower, as worries about the world's second-largest economy mounted with questions surrounding the ability of property developer China Evergrande to make two interest payments this week.

Data in focus:

German producer prices rose sharply again in August, and Commerzbank said the end of the upward trend is still a long way off. Prices were 12% higher than a year ago.

Higher energy and intermediate product prices were once again the main drivers of the upsurge, Commerzbank's senior economist Ralph Solveen said.

Intermediate products were 17.1% more expensive than a year ago, meaning the steep upward trend is unbroken, he said. This strong inflation in intermediate products is driving up prices for consumer goods, which are almost 2% higher than a year ago, Solveen said.

This increase is likely to continue in the coming months, both at producer and consumer levels, Commerzbank forecasts.

U.S. Markets:

U.S. stock futures fell, pointing to an extension of recent losses on Wall Street as jitters in China's indebted property sector rippled into global markets.

The concerns over Evergrande struck at a time when investors had already grown more cautious about the outlook for stocks, after a booming rally for much of the year. Money managers have said valuations look elevated and pointed to signs that the economic recovery in the U.S. has lost steam amid the spread of the Delta variant of the coronavirus.

The Federal Reserve will likely use its policy decision Wednesday to pave the way to pare back some of the stimulus it lavished on markets last year, he added.

Forex:

The dollar rose broadly ahead of a Fed meeting announcement Wednesday, when policy makers might say something regarding plans to taper asset purchases.

"The FX market starts a very busy week with a stronger USD across the board amid renewed expectations of a hawkish FOMC meeting outcome on Wednesday on the back of the series of stronger-than-expected economic data released in the past week," UniCredit said.

The Fed is very unlikely to provide details on the composition and pace of planned tapering, but should "leave little doubt" that these will be communicated in early November, the bank's analysts said.

The DXY index earlier hit a four-week high of 93.3620, while EUR/USD hit a four-week low of 1.1710, according to FactSet.

The pound weakened 0.6% against the dollar to trade at $1.3670.

Bonds:

European credit markets are likely to withstand a possible bond taper by the Fed and slower company earnings growth, says UniCredit.

This week's eurozone economic data is likely to show a slowdown in economic growth, despite remaining strong, which "might lead to a slowdown in the pace of corporate earnings growth over the months to come," analysts at the bank said.

This might keep markets nervous at a time when the Fed seems set to signal that it will possibly start tapering asset purchases by the end of the year.

Yet European Central Bank bond purchases are helping to absorb the still high bond supply, which should limit the risks for euro-area rates and European credit, they said.

The term premium--the yield premium investors demand for holding long-dated bonds rather than short-dated ones--is set to increase in the eurozone as the European Central Bank will buy less assets next year, said Societe Generale.

"As the ECB is set to absorb less of the EGBs--eurozone government bonds--and EU issuance next year, there is room for a further rebuilding of EUR term premium," it said.

Societe Generale recommends investors to remain short duration and keep five-year to 30-year steepener positions. Societe Generale added that the retracement of German Bund yields from the July rally is consistent with the strong recovery in the eurozone despite remaining uncertainties.

Pimco has long expected the Fed to announce tapering plans at its December meeting but now it believes "there is a decent chance that they announce as early as November," said Tiffany Wilding, portfolio manager and US economist at the asset manager.

Still, because this coincides with the Treasury's so called debt ceiling "X-date", the date when Treasury will run out of funding, "we suspect the tapering decision will be delayed to the December meeting," she said.

Pimco has downgraded real GDP growth estimates since the July meeting, now expecting 3Q real GDP growth of 3% quarter-on-quarter compared with 6.5% originally expected.

Commodities:

Oil prices were under pressure early in the week, with most equities indexes also in the red and the dollar making gains--a stronger U.S. currency makes dollar-denominated commodities like oil more expensive for other currency holders.

"For the remainder of the week, the market is likely to be influenced by further external factors, " said ING's Warren Patterson, with investors watching the meeting of the Fed later this week and soaring gas prices.

Gold wavered as investors look ahead to the Fed meeting for clues about the tapering timeline. The dollar and bond yields were creeping higher ahead of the meeting, keeping gold prices capped, Commerzbank said.

Investors will also be looking to see what the Fed says about interest rates, the bank says. "If Fed Chair Powell can convince the market that tapering will not be quickly followed by any rate hikes, gold could recover somewhat in the second half of the week," Commerzbank said.

Copper prices fell for a third consecutive day, as investors' worries about China's Evergrande mounted.

Three-month copper on the LME dropped 1.9% to $9,090.50 a metric ton, adding to a 4% fall last week. Aluminum also dropped 0.6% to $2,857.50 a ton while nickel slumped $18,835 a ton.

The woes of heavily indebted property giant Evergrande are hitting shares of the nation's property companies and sparking worries about the spillover impact from the company's potential collapse.

"Investors seem to be preparing for the inevitable collapse of the entire operation," said Malcolm Freeman, CEO of brokerage Kingdom Futures. "This has all proved too much for the metals which are all under attack," he said.

EMEA HEADLINES

Prudential Plans to Raise Up to US$2.89B in Hong Kong Share Offer

Prudential PLC is planning to raise up to 22.49 billion Hong Kong dollars ($2.89 billion) by issuing new shares as the insurer looks to redeem high-coupon debt due in six months and invest for growth.

The U.K. insurer is planning to sell 130.78 million new shares in the Hong Kong offer and has set a maximum price of HK$172 per share, Prudential said Monday.

Lufthansa Eyes $2.5 Bln From New Capital Raise

Deutsche Lufthansa AG is launching a capital increase worth 2.14 billion euros ($2.51 billion) as the German airline looks to strengthen its equity position.

Starting Wednesday and running until Oct. 5, just under 6 million new shares will be offered to shareholders, doubling the current number, at a subscription price of EUR3.58 for each new share. Lufthansa shares closed Friday at EUR8.21.

Merck KGaA to Invest More Than $3.5 Bln in Electronics Business

Merck KGaA said Monday that it will invest in its electronics business over the coming years, as it looks to capitalize on global growth in demand for semiconductor and display materials.

The German company plans to invest more than 3 billion euros ($3.52 billion) in its electronics division by the end of 2025. Money will go into research and development, as well as into capital expenditure on long-term fixed assets, Merck KGaA said.

SSE Says There Has Been No Decision to Break Up Group; Plans to Accelerate Investment Through 2026

SSE PLC said Monday that there has been no decision to break up the company after media reports that a significant shareholder was pushing for a separation of the renewable portfolio from the regulated networks business. It also said that in November it will publish details of significantly increased investment plans through 2026.

The energy company said its clear strategic focus is on renewables and on regulated electricity networks, and these businesses have exciting growth potential aligned with net zero targets.

Universal Music Spinoff to Test Investors' Appetite for Music

Vivendi SE's spinoff of Universal Music Group, expected Tuesday, will leave the French conglomerate bereft of its most lucrative business and will test the market's appetite for music as an asset class.

The world's largest music company, behind stars including Taylor Swift, Drake and the Beatles, will debut on Amsterdam's Euronext stock exchange with shares to be distributed to Vivendi's investors. The move comes amid rising interest in the resurgent music business as an investment and following a recent boom in the value of music catalogs, music-streaming companies and technology for creators.

Shell to Start Making Lower-Carbon Jet Fuel as Regulations Loom

Royal Dutch Shell PLC is the first major oil company to announce targets for low-emission jet-fuel output and sales as airlines look to buy more of the fuel to meet climate-change goals and get ahead of proposed European Union regulations.

The Anglo-Dutch energy giant, a top provider of jet fuel, said it plans to produce 2 million metric tons of so-called sustainable aviation fuel a year by 2025, up from none today. It wants SAF to account for at least 10% of the jet fuel it sells by 2030, including fuel it sources from outside suppliers. A Shell spokesman declined to say how much SAF it sells now.

Nigeria's State Oil Firm Incorporated Under New Oil Law

Nigerian National Petroleum Corp., which has been run as a state enterprise since 1977, is to be incorporated as a company with a board.

An official statement on Sunday said the Nigerian President Muhammadu Buhari, who is also the country's Minister of Petroleum, has directed the incorporation as stipulated in the Petroleum Industry Act 2021.

Europe's OVHcloud Readies Possible $4.7 Billion IPO

European cloud-services provider OVHcloud plans to launch a possible initial public offering, the company said Monday, a deal that could value the business at more than $4.7 billion.

Based in Roubaix, France, OVHcloud rents computing, storage and networking capability to users, overseeing a network of dozens of data centers across North America, Europe, Singapore and Australia. It also operates its own fiber-optic network globally that the company claims gives it a competitive edge.

Investment Firms Tiedemann and Alvarium Near Deal to Merge, Go Public Via SPAC

Investment firms Tiedemann Group and Alvarium Investments Ltd. are close to a deal to merge and go public through a special-purpose acquisition company, people familiar with the matter said.

The combined investment firm would be called Alvarium Tiedemann Holdings and be valued at roughly $1.4 billion in the deal with the SPAC Cartesian Growth Corp., the people said. The merger could be announced as soon as this week.

U.S. Spat With France Shows Challenge of Keeping Allies Unified

France stepped up its opposition to a security agreement the U.S. crafted with Australia and the U.K., criticizing the Biden administration's failure to keep its allies apprised of sweeping foreign policy initiatives after the pact led to the loss of a lucrative French submarine deal.

On Sunday, French Foreign Minister Jean-Yves Le Drian discussed "the strategic consequences of the current crisis" with its ambassadors from the U.S. and Australia who were recalled for consultations. French President Emmanuel Macron is also expected to speak in the coming days with President Biden, officials from both countries say, in a sign of the depth of France's frustration over the security pact. Mr. Le Drian likened French anger over the security pact to the blowback from American allies over the Biden administration's abrupt and messy withdrawal from Afghanistan.

Russia's Ruling Party Leading in Elections as Putin Looks to Tighten Grip

MOSCOW-Russia's ruling party appeared on course to maintain its majority in parliament, preliminary results showed, in an outcome that would cement President Vladimir Putin's control over his country's main levers of power.

The initial tally showed pro-Kremlin United Russia won 50% of votes cast, followed by the Communist Party of the Russian Federation with 20% and the Liberal Democratic Party of Russia with around 8%, according to early results from Russia's electoral commission based on 85% of the ballots counted.

Russia's Deepening Belarus Ties Squeeze Western-Backed Ukraine

BRUSSELS-Russia's deepening integration with Belarus is presenting a fresh military threat to Western-backed Ukraine, which Moscow is trying to draw back into its orbit.

Russia has been conducting large joint military exercises with Belarus, whose authoritarian leader, Alexander Lukashenko, weakened by mass street protests and Western sanctions, has ceded much political and economic control of his country to Moscow. The exercises, which Russia says are defensive in nature and involve some 200,000 troops, showcased closer military ties on Ukraine's northern flank.

GLOBAL NEWS

More CFOs Add Sustainability Targets to Corporate Loans

An increasing number of companies are tying the interest rates on their corporate loans to environmental and other sustainability targets as they face pressure from investors and regulators to go green.

Sustainability-linked loans carry interest rates that adjust based on whether a company meets a predetermined environmental, social or governance goal, such as reducing carbon emissions. U.S. companies took out $83.8 billion in such loans through Sep. 16, up from $2.5 billion during the same period in 2020, according to Dealogic, a data provider. U.S. corporate loan volume, including sustainability-linked loans, was $1.7 trillion as of Sep. 16, Dealogic said.

Chinese Property Sector Selloff Continues as Evergrande Worries Mount

Shares of Chinese property developers continued to slide Monday as worries mounted that China Evergrande Group is moving closer to a default, signaling the potential for a wider contagion in the sector.

The Hang Seng Mainland Properties Index plunged more than 6.0% on Monday morning, taking year-to-date losses to 33%. Evergrande fell 17% to HK$2.11, while Sunac China Holdings Ltd. slid 10% and Guangzhou R&F Properties Co. fell 7.3%. Property-management companies also tracked lower, with Country Garden Services Holdings Co. retreating 12%.

RBA's Dovish Convictions May Be Challenged by Soaring Shipping Costs

The Reserve Bank of Australia's confidence that interest rates won't be raised in the next two years is set to be tested as soaring shipping costs and a weaker exchange rate push core inflation back within the target of 2%-3% in 2022.

Marcel Thieliant, senior economist at Capital Economics, said Monday that shipping costs from China to Australia are now around 250% higher than before the pandemic.

Economy Week Ahead: Central Banks, Home Sales, Purchasing Managers

The Federal Reserve's policy statement and Chairman Jerome Powell's press conference on Wednesday highlight this week's slate of economic news.

Democrats Press Ahead With Debt-Limit Vote Amid Standoff With GOP

WASHINGTON-A partisan fight over raising the government's borrowing limit is expected to ratchet up this week, with Democrats moving ahead with a vote in the face of strident GOP opposition, raising doubts about whether Congress will take action before the federal government runs out of cash.

The standoff has alarmed Wall Street analysts and business leaders, who in recent weeks have issued warnings about a rising risk of a technical default, in which the government might be unable to make all of its regular payments in full and on time. The threat of such a default could derail markets and hit U.S. economic growth.

Junk-Debt Sales Soar Toward Record Year

The $3 trillion market for low-rated companies' debt is having its best year ever, powered by a rebounding economy and investors' demand for any extra yield.

U.S. companies including Crocs Inc. and SeaWorld Entertainment Inc. have sold more than $786 billion of junk-rated bonds and loans so far in 2021, according to S&P Global Market Intelligence's S&P. That tops the previous high for a full year in data going back to 2008.

Covid-19 Vaccinations Boost the Global Economy, but May Not Cure It Alone

The global recovery is slowing as Covid-19 resurges, spurring governments to try to raise vaccination rates in hopes of fueling stronger economic growth.

The thinking is, first, that vaccinations will ease consumers' worries about infection, prompting them to spend more on travel, dining out, going to concerts and other activities that involve proximity to other people. Second, reduced Covid-19 case counts would mean fewer government shutdowns of ports, factories and other operations critical to global supply chains.

Natural-Gas Prices Surge, and Winter Is Still Months Away

Natural-gas prices have surged, prompting worries about winter shortages and forecasts for the most expensive fuel since frackers flooded the market more than a decade ago.

U.S. natural-gas futures ended Friday at $5.105 per million British thermal units. They were about half that six months ago and have leapt 17% this month.

As Congress Debates Trillions in Spending, Voters' Minds Are Elsewhere

FORT WAYNE, Ind.-Sen. Todd Young warned the few dozen conservatives gathered this month in the basement of a sushi restaurant that their activism could be the only thing to stop Congress from spending trillions of dollars of tax money.

"You flooding the zone with your concerns will amplify for members just how serious they are," the Indiana Republican said.

Afghan Valley Legendary for Resisting Soviets, Taliban Empties Out

BAZARAK, Afghanistan-What's missing these days in the capital of Panjshir, the only Afghan province that resisted the Taliban after last month's fall of Kabul, are the Panjshiris.

Health Experts Urge Patience on Wider Use of Covid-19 Booster Shots

WASHINGTON-Top U.S. health officials urged patience on broader approval for booster shots for the coronavirus vaccine, two days after a Food and Drug Administration advisory panel recommended that a booster from Pfizer Inc. and BioNTech SE should be limited to the elderly and other groups at higher risk.

"Ultimately, the real, proper regimen will turn out to be the original two shots plus a boost," said Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said on NBC's "Meet the Press" Sunday. He said officials' highest priority is to vaccinate unvaccinated Americans.

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(END) Dow Jones Newswires

September 20, 2021 06:25 ET (10:25 GMT)

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