Evergrande crisis and record energy prices weigh on markets – business live | Business

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The liquidity crisis at Evergrande, China’s second largest property developer, is weighing on the market mood today — with the surge in energy prices also causing investors growing concerns.

Evergrande, which has total liabilities over $300bn, is scrambling to raise funds as it teeters between a messy meltdown with far-reaching impacts, a managed collapse or a government bailout.

And today, Evergrande’s onshore unit has halted trading in all bonds after a domestic rating cut put it among the country’s riskiest issuers.

Fears over Evergrande’s ability to repay investors have risen in recent weeks, triggered protests and creating anxiety over the implications of a collapse.

Yesterday, Chinese authorities told Evergrande’s major lenders not to expect interest payments due next week on bank loans, taking the cash-strapped developer a step closer to one of the nation’s biggest debt restructurings.

And earlier today, Evergrande’s main unit, Hengda Real Estate Group Co Ltd, applied to suspend trading of its onshore corporate bonds, following credit rating downgrades from rating agencies China Chengxin International (CCXI) and S&P – and increasingly jittery trading.

Reuters explain:

Suspension of trade in Hendga’s onshore corporate bonds indicates an increasing likelihood of defaults and restructuring, market participants said.

A bond trader, who declined to be identified, said that the changes in the trading mechanism were likely aimed at limiting participation and curbing volatility.

“Many companies would adjust the trading mechanism of their bonds ahead of default,” he said.

The crisis is knocking shares across the property sector, at a time when China’s housing sector already appears to be slowing.

China’s CSI 300 stock index has dropped almost 1% today, with Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA reporting that Evergrande is “weighing on sentiment”.

The Evergrande saga, with its $300 billion of liabilities is reaching an endgame, with EverTeflon running out of non-stick material. I can see the mother of all debt/equity swaps being “encouraged” by the government, but in the meantime, the combination of the toxic cocktail outlined above will weigh on China equities.

As I have said previously, buying the dip is a perilous business right now in China.

Buying energy is becoming a challenging task too, with wholesale prices of gas and electricity surging to record levels in recent days.

The shutdown of one of Britain’s most important power cables importing electricity from France after a fire has added to the UK’s supply crunch and record high market prices.

These record prices are going to drive up energy costs for companies — eating into profitability — and also hit consumers in the next year once bills soar in response.

More seriously, these record prices are also forcing some factories to halt operations — suggesting the energy crisis could hit economic growth, as we’re only just going into the autumn….

UK Steel director general, Gareth Stace, says some steel factories have already been forced to pause operations.

“These extortionate prices are forcing some UK steelmakers to suspend their operations during periods when the cost of energy is quoted in the thousands per megawatt hour; last year, prices were roughly £50 per megawatt hour.

Even with the global steel market as buoyant as it is, these eye-watering prices are making it impossible to profitably make steel at certain times of the day and night.

Jim Reid, Deutsche Bank strategist, told clients this morning that:

There [are] growing concerns in the UK as a cable bringing power in from France was knocked out by a fire, which will put it out of action until at least October 13, possibly into 2022 for full capacity.

Tight supplies that haven’t been replenished as much as expected after a cold winter are partly responsible, but there’s also a lack of coal options as increasing numbers of plants are phased out, and Russia has sent less supplies to Europe than expected.

Investors are also watching for the latest US retail sales figures, which will show whether the Delta variant hit consumer spending in America last month.

European stock markets are expected to open higher, with the FTSE 100 called up 0.2%.

The agenda

• 7am BST: Eurozone new car registrations for August
• 9.30am BST: ONS realtime UK economic indicators
• 10am BST: Eurozone trace balance for July
• 1.30pm BST: US weekly jobless figures
• 1.30pm BST: US retail sales for August