ASX to dip after Wall Street on edge over Evergrande ‘black cloud’ and the Fed

The Australian sharemarket is set to open lower on Wednesday after US stocks ended their trading session almost flat following a broad sell-off on Monday, with traders assessing the risks from China’s Evergrande crisis and looking ahead to this week’s Federal Reserve meeting.

ASX futures were down 10 points, or 0.1 per cent, at 7229 as of 6:48 am AEST. Having veered between small gains and losses for much of the afternoon, the S&P 500 fell in the final minutes of trade and closed 0.08 per cent lower. The Dow Jones Industrial Average dropped 0.15 per cent, while the Nasdaq added 0.2 per cent.

“Investors remain on the edge of their seats as they await tomorrow’s update from the Fed as well as details around if and how the Chinese government will respond to the Evergrande crisis,” said Adam Phillips, managing director of portfolio strategy at EP Wealth Advisors.

Industrial, communication services and utilities stocks weighed on the US sharemarket. Disney slumped after the company forecast slower subscriber growth because of COVID-related movie and TV production delays.

Investors’ skittishness came as Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, said the Chinese property developer’s teetering on the brink of collapse was “still a black cloud hanging over global markets”.

Aside from worries over Evergrande’s ability to make good on $US300 billion ($415 billion) of liabilities, investors were also positioning for the two-day Fed meeting which started on Tuesday, where policy makers are expected to start laying the groundwork for paring stimulus.

“We have the virus that’s kicked in again as a concern,” said John A. Carey, a money manager at Pioneer Investment Management. “And then there’s the situation in Washington with the still uncertain outlook for various tax and spending plans, and so it’s hard for people to know which way to go.”

A Hong Kong gauge of real-estate firms steadied, after developers disputed a report of pressure from the Chinese government. Evergrande slid deeper in equity and credit markets. Concerns remain about broader contagion after S&P Global Ratings said the developer is on the brink of default. China’s markets reopen on Wednesday after holidays.

China’s property-sector upheaval — part of President Xi Jinping’s broader clampdown on private industries under his “common prosperity” initiative to reduce inequality — is adding to the risks confronting investors. These include stretched equity valuations and slower economic reopening due to the Delta virus strain amid price pressures stoked by commodities. Markets are also digesting an outlook of reduced central bank policy support.