Chinese authorities are asking local governments to begin preparations for the potential downfall of Evergrande, WSJ citing sources which characterised the actions as “getting ready for the possible storm,”

• Authorities are instructed to step in only at the last minute if Evergrande fails to manage its affairs in an orderly fashion.


• Local governments tasked with preventing unrest and mitigating the ripple effect on home buyers/broader economy

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Reaction details (11:19)

In reaction to the news, US and European equity futures pulled back, but still remain firmer on the session with the ES up 0.5%. USTs picked up off the lows, whilst the USD was only able to show modest gains as upside was limited by a move lower in USD/JPY. Oil had already been drifting lower ahead of the report, whilst the bounce in spot gold was relatively marginal.

Analysis details (11:18)

• Note, the article highlights that authorities are instructed to step in only at the last minute - indicating a reluctance for Beijing to intervene in the situation. Recent chatter around the theme has suggested that if authorities were to step in, they would likely break-up the group.


• As it stands, it is still not clear if Evergrande will be able to pay the offshore (USD denominated) bond interest payment due today.


• It is worth keeping in mind remarks from Fed Chair Powell on Wednesday, who suggested that there was less of a direct impact on US markets from the Evergrande fallout, although the sentiment channel could of course be impacted; that suggsts contagion risks for the US are low, at this stage. 

23 Sep 2021 - 11:12- Important- Source: WSJ