This is an audio transcript of the FT News Briefing podcast episode: Evergrande’s problems weigh on global markets
Hello from the Financial Times. Today is Tuesday, September 21, and this is your FT News Briefing.
The financial crisis of Chinese real estate developer Evergrande worries investors. We will see if the impending collapse remains contained. Additionally, we’ll learn how foreign investors are supporting the US Treasury market, why Royal Dutch Shell is selling much of its fossil fuel related business, and how Coinbase bowed to pressure from US securities regulators. I’m Marc Filippino, and here is the news you need to start your day.[MUSIC PLAYING]
Global stock markets seem very nervous about Chinese real estate developer Evergrande. Yesterday, the S&P 500 and the Nasdaq were both down about 2%. Things were not going much better in Europe. Today, Evergrande is the most indebted real estate developer in the world, and all of that debt is coming home. Investors are increasingly worried that the company will default and trigger a domino effect in global financial markets. This is Katie Martin from FT.
You can compare it to the scale of all the crises that have been globally significant and systemic to the entire financial ecosystem. You can compare it to things like Lehman Brothers. You can compare it to things like the Greek crisis. You can compare it to the subprime mortgage crisis in the United States. But what was different about these crises was that they had few connections, few roots in the global banking system. And that is what means that a crisis that occurs in one place can have a very serious impact elsewhere. And in this case, the bet so far has been that this won’t happen in the case of Evergrande, and chances are it’s still the right analysis, chances are that the right analysis is always China’s central bank, the People’s Bank of China, will step in to (inaudible) take further steps to mitigate the impact of this horrific dismantling of Evergrande on the rest of the Chinese economy, on the rest of the Chinese real estate sector.
Katie, are there other ways that an Evergrande default or a crisis in the Chinese real estate market could really affect global markets?
So, for example, the Chinese real estate sector is a huge consumer of commodities, and so if there is a really severe setback in the whole Chinese real estate sector, it means that there will be less demand for things. like steel and copper. Could this affect minors elsewhere? Could it affect lots of different businesses elsewhere? This is what is starting to eat into the rest of the system. The big question is: is this the start of something really huge and horrible or is it still a crisis contained in China? You know, it’s probably just a little time to take a break. It’s a loss of momentum. It is a setback. It’s not, you know, a full-blown crisis. It’s not the sort of thing we saw in March 2020. So if there is a way for Evergrande to have a major international bank dismantled, I haven’t heard it yet.
Katie Martin is the FT’s Markets Editor.
Investors are also keeping an eye on the Federal Reserve. This week, senior U.S. central bank officials will meet and investors are looking for clues as to when they will start scaling back the pandemic bond buying program. This move could lead to lower prices for government bonds given the loss of demand. But the FT’s Kate Duguid reports that there is a strong demand for US Treasuries from elsewhere.
So we see that a lot of that demand comes from China and Japan. These two countries are already the two biggest holders, foreign holders of US debt, but demand has increased.
Yeah, why is that?
So the first thing is that the US Treasury market is the safest and most liquid market in the world. So there’s always, you know, a great demand for American debt. But it is also true that yields on US debt are currently higher. And so we saw the demand from all over the world, but in particular from China and Japan, which still have some demand for US debt that is increasing in order to maximize their returns on the safest debt possible. It is also true that growth expectations in the United States are slightly higher than in some other G10 countries. And so, higher economic expectations also lead to higher yields on public debt. And so there is also a demand from foreign investors for this reason.
So what does it mean for the bond markets, Kate, if Treasury prices and yields remain stable?
What this could mean in the longer term is that when the Fed begins to ease monetary policy in the era of the pandemic, that demand could prove to be a counterweight. So, generally, when the Fed withdraws its support, yields rise. It’s true, that there is a huge supply, that the Fed is not buying so many assets. Thus, there are many assets available to normal investors, which would generally result in lower prices and higher returns. But since the demand is so high, we might not see these effects. Yields may remain low, prices may remain high. It also means that yields on US government debt will remain somewhat limited.
Kate Duguid is the FT’s capital markets correspondent in the United States.
Royal Dutch Shell takes another step in its move away from fossil fuels. Yesterday Shell agreed to sell its business in an oil drilling region in the United States known as the Permian Basin. Rival ConocoPhillips will buy the operations for nine and a half billion dollars in cash. The region lies in West Texas and Southeast New Mexico, and it is the largest oil field in the United States. In May, a Dutch court ordered Shell to reduce its net carbon pollution. Shell said $ 7 billion from the sale would go to shareholders and the rest would be used to pay off debt.[MUSIC PLAYING]
Financial regulators around the world are grappling with cryptocurrency companies. The main US regulator, the Securities and Exchange Commission, has taken a tough stance and, in one case, threatened to sue the country’s largest cryptocurrency exchange called Coinbase if Coinbase goes ahead with its plan to launch. a loan product. Regulators considered it to be an unregistered title. Now Coinbase has backed off. Hannah Murphy of the FT calls the move a symbolic loss for Coinbase.
Looks like they went to the SEC first, then the SEC said, no we don’t want you to do that. At that point, they decided to go ahead anyway. And then that’s later the SEC said, you know, we’re going to sue you if you keep moving forward. So it looks like they received not one but two warnings and eventually went to lawyers, one would imagine, and decided that the best way forward is to take a step back. There is another side to this, which is that state regulators are suing some of their peers in the crypto space. So, on Friday, Celsius, which also offers interest-bearing crypto lending products, was ordered by the state of New Jersey to stop ordering these products, and BlockFi, another lending platform. , also has similar actions carried out by the three states. So it seems to be some sort of regulatory boost around these particular loan products.
So, Hannah, what does Coinbase’s decision mean for other cryptocurrency companies?
So I think it will apply to other crypto lenders or cryptocurrency exchanges, who also offer these lending products. It could be a chill in the industry. Those who are offering existing products or considering offering existing products will have to re-evaluate, you know, are we continuing to do that? What are the next steps we should take? It’s important to remember that the SEC didn’t say you can’t do this at all. The SEC told Coinbase, you know, if you were to do that, you would have to register with us. Now, that kind of involves more disclosures, a lot of paperwork, more bureaucracy. So it’s understandable why the particularly smaller and more innovative players in the space don’t necessarily want to do this, but it’s still an option for Coinbase.
She is FT technical correspondent Hannah Murphy.
And before leaving, a toast to the beer industry going green (sound of the opening of the beer can). And it’s an interesting alliance. Russian aluminum group Rusal is teaming up with US beer giant Budweiser to produce ultra-low carbon beer cans. Rusal will supply Bud with five million aluminum cans that remove carbon dioxide from the smelting process. The cans will be filled at two breweries in the UK that run on renewable electricity. This is only a tiny fraction of all the beer cans that are made. But a senior official at Rusal’s parent company called it the first commercial deployment of near-zero carbon aluminum on a large scale.
You can read more about all of these stories at FT.com. This has been your daily FT News briefing. Make sure to come back tomorrow for the latest business news.
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