Preparing for the FOMC and Keeping on to Fear Evergrande

Yesterday the markets were trying to pass off wishful thinking and desperately believed in miracles. For example, that the Chinese authorities will take and rescue the hapless developer Evegrande on a beautiful white horse. These expectations can be understood because the price of the issue is extremely high: the total assets of the company are under 2 trillion yuan, which is about 2% of China's GDP. But the main thing is the potential collapse of the entire real estate market in China. Actually, according to Nomura, in the first ten days of September, home sales in the primary and secondary markets in China, as well as land sales, have already decreased by 26.6% y / y, 46.6% y / y and 38.3% y / y, respectively. And the volume of transactions with land in value terms decreased in the first ten days of September by 90.4% y / y.

Given that the overwhelming majority of China's developers are terribly indebted, the refusal to refinance debt (and this is a natural reaction of creditors to the default of Evegrande) will provoke a wave of bankruptcies and a potential collapse of the Chinese real estate market, and there, through financial contamination, everything will be passed down the chain and will cover the entire financial system. ...

The Fed may somewhat calm the markets today. Not in the sense that the US Central Bank will lend a helping hand to the Chinese developer, but in the sense of keeping the parameters of monetary policy unchanged. And while the need to start reducing the quantitative easing program is more than obvious, the Fed has something to justify its inaction, ranging from classic curtsies towards a pandemic, to a potential US default if the government debt ceiling is not raised, as well as weak NFP data for August. And the current situation with Evegrande is not conducive to sudden movements. The boat is on the verge of a coup.

So buyers in the US stock market today can get a reason to buy from deep, but the dollar can be sold locally. But it is unlikely that all this will be too widespread, since every buyer will have the specter of default Evegrande behind them. However, on Thursday, the ghost can either dissipate like smoke, or materialize into a natural monster.

Last but not least, China Evergrande will pay a coupon payment of $ 35.9 million on September 23rd.