Weekly Digest: Evergrande Worries, Crypto Blackout


10 minutes read

Sep 22, 2021

economic downturn, housing crisis and market collapse pictured as an illustration of a red graph arrow going down and stabbing a hand.

22/09/21: China’s property giant verges on collapse, global housing market is hurting, Solana network knocked offline. And more.

Investment news

Not Evergreen, Evergrande. Global equity markets fell over China’s Evergrande default fears, with investors nervously looking for a possible intervention by Beijing to stem any domino effects across the global economy. (CNBC)

What happened? Markets fell and Bitcoin price dropped over fears of an economic contagion sparked by the crisis at Evergrande, the world's most indebted property developer. The company owes roughly $300 billion in debt and is the poster child of an overheated Chinese housing market.

What does it mean? Some strategists believe the situation could send ripples across the global economy. But they also say the issue will likely be curbed by the Chinese government before it can wreak damage in the banking system.

“Everyone was expecting the government would have some kind of resolution, given that Evergrande is a systemically important company. It has $300 billion in outstanding debt. There is a contagion issue if China Evergrande is not resolved. I think it will end up having some deep-pocketed state-owned enterprises to take over,” said Jimmy Chang, chief investment officer at Rockefeller Global Family Office.

This week investors are fixated on the Fed’s two-day policy meeting, looking for hints on how soon the U.S central bank will start scaling back monthly asset purchases. (Reuters)

And yet, there’s still much uncertainty around when the central bank will announce and subsequently cut its bond purchases. The same goes to when it will raise interest rates after slashing them to near zero after the outbreak of the Covid pandemic.

“Rather than proceed with a taper now and signal the initiation next year of a measured and gradual normalization of interest rates, the Fed is likely to adopt a more dovish approach. This could include signaling the possible start of a taper later this year or early next year, reiterating that the taper decision is decoupled from the policy rate decision, signaling a delayed and slower interest rate normalization and packaging all of this in highly conditional language,” economist Mohamed El-Erian wrote in an article.

How it could affect the gold price? Some investors believe that higher interest rates could send the gold price lower because rising interest rates make bonds and other fixed-income investments more attractive. However, historical data shows rising interest rates may sometimes have a bullish effect on gold. This is why the outcome of this meeting is important to follow.

Janet Yellen once again says the U.S. faces “widespread economic catastrophe” if it doesn’t increase or suspend the debt limit, adding that the government could run out of money next month if it doesn’t take action. (Bloomberg)

A U.S. default “would likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency, throw the U.S. into recession and leave it a permanently weaker nation,” she said.

Democrats in the House of Representatives passed a bill on Tuesday to suspend the debt limit until the end of 2022, sending it to the Senate where Republicans have vowed to block it.

It seems that the global housing market is broken: soaring property prices are forcing people around the world to abandon the dream of owning a home. (Bloomberg)

It's not just homebuyers who are struggling — rents are also increasing in many cities, deepening inequalities and leaving an entire generation at risk of being left behind.

“We’re witnessing sections of society being shut out of parts of our city because they can no longer afford apartments. That’s the case in London, in Paris, in Rome, and now unfortunately increasingly in Berlin,” Berlin Mayor Michael Mueller says.

Analysts say the situation could have unpredictable repercussions, with the leader of Germany’s Ver.di trade union calling rent the “21st century equivalent of the bread price,” — the historic trigger for social unrest.

Morgan Stanley, the U.S. investment bank, says 20% market retreat looks like a possibility, as evidence is starting to point at falling consumer confidence and slower growth. (Bloomberg)

Morgan Stanley noted, however, that it remained a “worst case scenario”, while the best scenario will see a 10% correction in the S&P 500.

Solana, the main hype train in the digital currency world, has been all over the news after its blockchain came to a grinding halt for roughly 17 hours last week. The developers said it was due to a denial-of-service attack. (Bloomberg)

Solana founder Anatoly Yakovenko, shrugged off this incident with just two words: “growing pains.”

“Blockchains are run by basically volunteers, random people with different incentives. It’s impossible to guarantee that these networks are fully bug free,” he told Bloomberg.


Has the Solana blackout just revealed the fragility of crypto blockchains? “This is something we’ve seen over and again in the cryptocurrency markets since they’ve become a phenomenon. And it does reflect how new the industry is, that the industry needs to scale,” said Teddy Fusaro, president of Bitwise Asset Management. (Bloomberg)

Solana’s market cap jumped past $62 billion earlier this month, with the price per token soaring roughly 6,000% in a year. Some even touted it as a better alternative to Bitcoin and Ethereum. But even the hottest blockchains can go down.

Emin Gün Sirer, chief executive of Ava Labs, which develops the Avalanche blockchain, compared the practical use of cryptocurrency networks to the weather.

“One of the biggest challenges is seeing how systems react in various unique situations in real-time. Developers across the community can forecast and prepare for every event with extensive modeling and testing, but you can never be 100% certain,” he said.

What else is happening

China's top securities regulators held a private meeting with Wall Street executives, during which they defended Beijing’s sweeping tech crackdown. (Reuters)

Global investors have been concerned by the regulatory onslaught from the Chinese government targeting its technology companies and other industries. The move is widely seen an attempt to wrestle power out of the arms of big tech firms.

The crackdown has already erased US$1.5 trillion from Chinese stocks amid sell-off, but China Securities Regulatory Commission vice-chairman said it was meant, in part, to improve data privacy and national security.

How a submarine deal sparked a major diplomatic crisis: France has recalled its ambassadors to the U.S. and Australia in response to the strategic partnership with the U.K. that thwarted a multibillion-euro submarine contract signed earlier between Paris and Canberra. (Politico)

The U.S., Australia and U.K. announced on Wednesday a landmark security pact that saw Australia ditch its deal with France’s Naval Group to build a fleet of submarines. Paris called the move a “stab in the back.”

Capping its first tourist mission, SpaceX successfully returned its Crew Dragon spacecraft from orbit on Saturday, with the capsule carrying the four members of the Inspiration4 mission back to Earth after three days in space. (CNBC)

Crew Dragon capsule Resilience splashed down off the coast of Florida in the Atlantic Ocean. SpaceX founder and CEO Elon Musk tweeted his congratulations to the crew shortly after the landing.

He also took a shot at Joe Biden for ignoring the accomplishment, saying the president was “still sleeping.” The snappy comment echoes the insult of former President Donald Trump, who referred to Biden by the nickname "Sleepy Joe."

And finally…

“I do love knitting patterns.” A top European Commission official was caught knitting during her boss' annual "state of the union" address. (Reuters)

Margrethe Vestager, who is in charge of ensuring fair business competition in the EU, sat calmly knitting in the European Parliament while Commission chief Ursula von der Leyen delivered her policy address.

Because… why not? 


See you next week!  


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