Markets continue bearish theme as Evergrande fears reemerge in China

• Evergrande fears return, hurting Chinese sentiment
• European markets lose ground despite recent FTSE 100 outperformance
• US expected to continue risk-off theme as FOMC outlook signals potential further upside for rates

Equity markets throughout much of Asia and Europe are following the bearish theme led by US markets last week, with the S&P 500 and Nasdaq having both experienced their worst week since March. The reemergence of concerns around Chinese real estate came curtesy of a sharp collapse in Evergrande shares, with the property giant noting that it must revisit its restructuring plans as an ongoing probe into their Hengda subsidiary stopped them from issuing new notes.

European markets are on the back foot in early trade today, coming off the back of a period that has largely been relatively generous to the FTSE 100. With the Bank of England touting a more dovish line than expected, the pound has taken a battering. However, a more dovish central bank outlook and weakening pound do help stocks as those companies earning abroad see their revenues benefit from FX rates. Growth projections from KPMG this morning signal a potential slowdown in the second half of 2023, with the BoE decision to halt their tightening process likely to have come from that same fear that the lagging interest rates effects are finally dealing damage to the economy.

US markets are staring at another tough day ahead, with futures markets signalling fresh declines at the open. The Federal Reserve’s decision to take a notably more hawkish tone at their meeting signalled a potential November rate rise, with the 2024 Fed Funds target shifted up to 5.1% from 4.6%. With oil prices heading higher, there is a real risk that central banks will need to tighten further and maintain them at these levels for longer in a bid to combat inflation. With that in mind, the eurozone CPI data due this week will be followed closely for any signs of an energy driven resurgence in price growth.