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European stock markets are expected to open lower Monday, weighed by sharp losses in Asia amid concerns about the health of property giant China Evergrande Group (HK:3333) and ahead of the week’s crucial Federal Reserve meeting.
At 2 AM ET (0600 GMT), the DAX futures contract in Germany traded 0.9% lower, CAC 40 futures in France dropped 2.1% and the FTSE 100 futures contract in the U.K. fell 0.8%.
European equities have received a negative handover from Asia, despite China, Japan and South Korea being on holiday, with Hong Kong’s Hang Seng index dropping more than 3%, dragged down by the continued dumping of shares in Chinese property company Evergrande.
Investors seem to be taking a dim view of its business prospects, with a bond interest payment due on Thursday and concerns growing that a default on its $300 billion of liabilities could crystallize broader risks in China’s financial system.
The week also sees a number of central banks hold policy-setting meetings, including the Bank of England, the Bank of Japan and the Swiss National Bank. But the focus will be on the Federal Reserve, with the U.S. central bank potentially taking another step toward tapering at its two-day meeting, starting on Tuesday.
Gold was down on Monday morning in Asia, hitting a more than five-week low. Meanwhile, the dollar strengthened and investors await the latest U.S. Federal Reserve policy decision.
Gold futures were down 0.31% to $1,746.05 by 12:14 PM ET (4:14 AM GMT), after hitting $1,741.8, their lowest level since Aug. 12, earlier in the session. The dollar, which normally moves inversely to gold, edged up on Monday.
All eyes are on whether the Fed will announce that it will begin asset tapering as it hands down its policy decision on Wednesday. The central bank will also likely release fresh economic projections and a new read on officials’ expectations vis-a-vis interest rate hikes.
Investors are starting to think that an asset tapering announcement could be imminent and that there could be a hawkish surprise in the dot plots, SPI Asset Management managing partner Stephen Innes told Reuters.
“It really looks like the markets turned quite bearish on gold, with some critical support levels, including $1,780 and $1,750, giving away and I think this does open up for a test of $1,700,” he added.
The dollar rallied to a month-high in Asia on Monday as looming catastrophe at indebted developer China Evergrande added extra nerves to a cautious mood, with investors bracing for the Federal Reserve to take another step towards tapering this week.
In trade thinned by holidays in Japan, China and South Korea, the euro fell 0.1% to $1.1710, its lowest since late August.
The Australian dollar fell 0.5% to a three-week low of $0.7227 while sterling and the kiwi also hit multi-week troughs on the rising greenback. The dollar index rose 0.1% to 93.356, its highest since Aug. 23.
“The U.S. dollar is having a bit of a rebound,” said Westpac analyst Imre Speizer, drawing support, he added, both from an expectation of imminent asset purchase reductions from the Fed and from caution as stock market selling gathers pace.
“Everyone is eying the Fed, waiting for a tapering signal.”
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