US stock futures rebound after Evergrande crisis sparks worst sell-off since May, as oil recovers lost ground

Evergrande is China’s second-biggest property developer.

US stocks look set for gains Tuesday after the S&P 500 suffered its worst day since May.
Markets are concerned the debt crisis at Chinese property developer Evergrande could spread.
Yet strategists said there is a strong “buy-the-dip” reaction that is supporting equities.
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US stock futures rallied on Tuesday after the debt crisis at giant Chinese property developer Evergrande sent equities tumbling the previous day.

Elsewhere in markets, oil prices recovered some of the ground given up on Monday. US bonds and the dollar retreated after investors bought up the safe-haven assets in the previous session.

S&P 500 futures were up 0.9% as of 6.00 a.m. ET. The US benchmark stock index fell as much as 3% on Monday, but ended up finishing 1.7% lower, its biggest fall since May.

Dow Jones futures rose 338 points for a 1% gain, after the related index closed Monday with a fall of 614 points, or 1.78%. Nasdaq 100 futures climbed 0.81%, after the tech-heavy index ended down 2.1%.

Analysts said the “buy-the-dip” mentality that has supported stocks all year remains strong among investors – helping explain why equities pared their losses in late trading on Monday and the rebound in equities on Tuesday.

Yet strategists said that the upcoming Federal Reserve interest-rate decision on Wednesday would keep investors on edge, with the central bank weighing up when to withdraw support for the economy in light of strong growth and inflation. The meeting of Fed policymakers begins today.

US stocks were already in quiet retreat when the Evergrande debt crisis rocked markets on Monday, leading to fears of worldwide financial contagion and talk of China’s “Lehman Brothers moment.” However, many analysts played down the risk to the wider financial system, suggesting Beijing might intervene.

Evergrande – China’s second-biggest property company, which owes more than $300 billion to creditors – is expected to miss making key bond interest payments due Thursday.

Its stock fell 0.44% Tuesday, building on a plunge of 10.24% the previous day, after S&P Global Ratings said a default is likely on those payments. S&P said it doesn’t expect the Chinese government to provide any direct support to Evergrande and that China’s banking sector can deal with a default by the developer without significant disruption.

Read more: Goldman Sachs says to buy these 17 stocks that are poised to continue out-growing their peers regardless of shocks to the economy

Relative calm descended upon the broader Hong Kong market as investors waited to see what will happen next. The Hang Seng index closed 0.52% higher after dropping 3.3% the previous day, and a gauge from the city of real-estate firms steadied. Chinese markets are due to reopen on Wednesday after being closed Monday and Tuesday for holidays.

In Europe, the continent-wide Stoxx 600 index climbed 0.94% in early trading on Tuesday, and the UK’s FTSE 100 rose 0.98%.

Oil prices rebounded along with stocks on Tuesday. Brent crude oil climbed 1.24% to $74.83 a barrel, while WTI crude advanced 1.31% to $71.05 a barrel.

The bounce was supported by “improved risk sentiment, and more importantly the global energy crunch currently unfolding in the natural gas market,” said Saxo Bank chief investment officer Steen Jakobsen.

US bonds slipped after investors bought them up in search of safe assets on Monday. The yield on the key 10-year US Treasury note was up 2.4 basis points to 1.333%. The dollar index slipped 0.14% to 93.15.

Bitcoin was down 0.6% to $43,263, according to Bloomberg prices, on Tuesday after tumbling from above $47,000 the previous day as investors fled riskier assets.

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