Investing.com -- Fears over China's debt-laden property sector mount after key player Country Garden halts trading on some of its mainland bonds. Elsewhere, economists at Goldman Sachs predict when the Federal Reserve will begin cutting interest rates after an aggressive policy tightening campaign, while investors look ahead to results from large big-box brands and retail sales figures for July.
1. China's property sector woes deepen
Chinese residential real estate giant Country Garden (HK:2007) suspended trading in more than ten of its onshore bonds on Monday, sparking a sell-off in the company's Hong Kong-listed shares as well as other stocks exposed to the country's ailing property sector.
Media in China reported that Country Garden, once China's largest developer by sales, is also seeking a potential debt structuring after it warned of a sharp loss in the first half of 2023.
Taken in conjunction with peer Evergrande (HK:3333), which last month reported combined losses of more than $81 billion in 2021 and 2022, the ongoing issues in China's real estate sector now seem to be intensifying. The industry has been severely hit by a liquidity crisis fueled by a slowdown in buyer demand, which has in turn weighed on the post-pandemic recovery of the world's second biggest economy.
Longfor Properties (HK:0960) and Seazen Group (HK:1030), two other Chinese real estate firms currently considered to be financially healthy, saw their shares and bonds dip on Monday.
China's government has chosen not to step in to bail out the struggling property businesses yet, but the issues at Country Garden, Evergrande, and elsewhere have spurred on calls for Beijing to provide more support.
2. Goldman Sachs' Fed outlook
The Federal Reserve is expected to start slashing interest rates again by the end of next June, according to predictions from economists at Goldman Sachs (NYSE:GS).
In a note to clients over the weekend, the investment banking giant forecast that the Fed will roll out gradual reductions in borrowing costs every quarter after that month.
Over a shorter term, Goldman sees the U.S. central bank foregoing a rate rise at its next meeting in September and then declaring in November that a moderation in inflation means that a final hike would be "unnecessary."
Data last week showed that growth in consumer prices in July cooled by more than anticipated on an annual basis, bolstering the case for policymakers to step back from a long-standing tightening cycle that began in March 2022. Headline inflation has slowed significantly since peaking last summer, but still remains above the Fed's stated 2% target.
3. Futures edge higher with key earnings ahead
U.S. stock futures inched into the green on Monday, as investors geared up for the release of quarterly results from big-box stores and retail sales data this week.
By 05:07 ET (09:07 GMT), the Dow futures contract added 47 points or 0.13%, S&P 500 futures climbed by 9 points or 0.20%, and Nasdaq 100 futures rose by 54 points or 0.36%. Last week, both the benchmark S&P 500 and tech-heavy Nasdaq Composite slipped, although the Dow Jones Industrial Average moved higher.
Traders will be keen to parse through earnings from Home Depot (NYSE:HD) on Tuesday, Target (NYSE:TGT) on Wednesday, Walmart (NYSE:WMT) on Thursday. The numbers will likely provide small snapshots of the current health of their U.S. customers, who have recently reined in spending on nonessential items amid broader inflationary pressures and elevated interest rates.
A more comprehensive picture of consumers in the world's largest economy will come on Tuesday when the Census Bureau releases its retail sales figures for July.
4. Oil dips on stronger dollar, China fears
Oil prices retreated on Monday, as concerns about China’s faltering economic recovery as well as a stronger dollar prompted profit-taking after seven weeks of gains on tightening supply from OPEC+ output cuts.
Worries over an economic slowdown in top oil importer China weighed, following a string of weak economic readings from the country over the past two weeks. Turmoil in China's beleaguered property market also cast a pall over sentiment.
Meanwhile, the U.S. producer price index released late last week saw the dollar climb to a five-week high, which hurts demand for crude as it makes the commodity more expensive for international buyers.
But losses in oil markets were limited as recent production cuts by Saudi Arabia and Russia pointed to tighter markets. Crude prices remained close to their strongest levels for the year.
By 05:08 ET, U.S. crude futures traded 0.4% lower at $82.87 a barrel, while the Brent contract dropped 0.4% to $86.46.
5. Tesla slashes some prices in China
Tesla (NASDAQ:TSLA) has cut prices in China for two of its Model Y model, as the electric car maker attempts to combat increased competition and entice customers wary of making big purchases in an uncertain economy.
Starting prices for both the Model Y long-range and performance models were reduced by 4.5% and 3.8%, respectively. Tesla also said it would offer insurance subsidies to buyers of its entry-level, rear-wheel drive Model 3 in China until the end of September.
Sales of Tesla cars made in China dropped by 31% month-on-month in July, the first decline since December.
The company has been offering deeper discounts both in and out of the country since late last year in a bid to protect market share, and Chief Executive Officer Elon Musk has hinted that it would continue to slash prices even if it crimps profit margins.
In a call with analysts last month, Musk said it made sense to "sacrifice margins to make more vehicles," arguing that the value of Tesla's cars will go up once Tesla's Full Self-Driving mode is perfected.