China Evergrande Debt Woes, Stocks Rebound from Sell-off

 Summary of content for the week of Sep 24:

1. Week 38 major indexes performance;

2. Week 38 US sector indexes performance;

3. Major indexes weekly charts of support and resistance levels;

U.S

For the week ended 24 Sep, the major benchmarks overcame an early sell-off to end the week flat to modestly higher. On Monday, the S&P 500 Index recorded its biggest daily drop since May 12, the primary factor was fears that a possible default by China’s second-largest property developer—and the world’s most heavily indebted one—might set off a global financial “contagion” similar to what followed the collapse of Lehman Brothers in September 2008. Stocks regained a large portion of their losses on Wednesday, however, which attributed to news of a restructuring plan for Evergrande, along with a capital injection into the Chinese banking system. Refer to major indexes’ weekly performance table below.

Key economic data update:

1.    Fed two-day meeting concluded Wednesday. As widely expected, they would soon consider tapering purchases of Treasuries and mortgage-backed securities. 

2.    Housing sales strengthen, with both housing starts and permits easily surpassing expectation.

Among 11 SPX sectors, Energy(XLE) and Financials (XLF) outperformed, longer-term bond yield rose sharply over the week, helping financials shares by holding the promise of improving banks’ lending margins. Utilities (XLU) and Smaller Real Estate(XLRE) stocks lagged. Refer to SPX sector indexes weekly performance below.

Technically, all three major indexes weekly candlesticks appear bullish, while their uptrend remain well intact. SPX and Nasdaq trading in between its 20 and 50dma and DJI appears relatively weaker, closed below its 20 and 50dma for the week.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

Mainland Chinese stocks (SSE weekly chart) ended a holiday-shortened week broadly flat from the prior Friday’s close after being closed Monday and Tuesday for the Mid-Autumn Festival. The market’s subdued performance was noteworthy after Hong Kong’s Hang Seng Index(.HSI weekly chart) fell more than 3.0% on Monday amid the mounting debt crisis surrounding China’s Evergrande Group. A series of large cash injections by China’s central bank during the week helped ease worries about a disorderly debt resolution for the indebted developer. However, some of Evergrande’s offshore bondholders did not receive their portion of USD 83.5 million in interest payments by a Thursday deadline in U.S. time, Reuters reported on Friday, citing unnamed sources. The company now enters a 30-day grace period, after which it will be considered in default if that period passes without payment.

Technically, SSE index is currently in a three-week consolidation after hitting its year high recorded in Feb, technical indicators appear bullish. .HSI index closed 2^nd week down in a row, tested its major support level at around 24,000 and rebounded just close above it. Going forward, it’s expected the index downside is limited.

Singapore

STI index ended the volatile week with a modest loss but appears the selling pressure is under control. Coming week, continues to watch out major support level around 3060-3050.

STI weekly chart.