Daily Business Briefing
Sept. 21, 2021, 7:18 a.m. ET
Sept. 21, 2021, 7:18 a.m. ET
Shares of China Evergrande, the troubled property giant whose fate has contributed to jitters in global markets, fell again on Tuesday amid a new prediction that it would soon default.
The company’s chairman, Xu Jiayin, told employees in a letter quoted in Chinese media that Evergrande would surmount its problems, which include $300 billion in debt, plunging sales of apartments and a payment due Thursday.
“I firmly believe that Evergrande will walk out of its darkest moment and resume full-speed work and production,†he said in the letter, which was confirmed by a company spokesman.
But a dire forecast about the company’s fate arrived on Tuesday for investors in Asia, this one from S&P Global Ratings. “We believe Beijing would only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy,†said the report, which was dated Monday.
Both the company’s shares and its bonds fell on Tuesday, though by more modest amounts than in recent days and weeks. Its shares closed 0.4 percent lower, and shares of other Chinese-focused property developers that tumbled on Monday recovered some of their losses. Hong Kong’s Hang Seng index, which fell 3.3 percent on Monday, ended the day with a 0.5 percent gain.
The impact of an Evergrande collapse would depend in large part on the attitudes of China’s top leaders.
Many of Evergrande problems stem from new restrictions on home sales as Beijing tries to tame property prices and address rising concerns about the price of homes. The government has also sought to teach a lesson to property developers who borrowed heavily in recent years to build more properties and finance their investments in other businesses. (In the case of Evergrande, those include interests that include electric cars and a soccer team.)
But a hard landing for Evergrande, should it default, carries risks. Unhappy home buyers and suppliers could cause unrest, while the financial impact on investors and others who might be exposed to Evergrande could be costly.
Beijing, however, has a number of ways to try to stop a financial disaster. The government controls the banks and the financial ties between them. It also firmly controls the flow of money across the country’s borders, allowing it to stem a potential rush of funds outside the country.
“The officials still have some tools at their disposal to calm down the panic,†said Zhiwu Chen, a professor of finance at the University of Hong Kong, who predicted the authorities would break up the company and sell its parts piecemeal.
The authorities also can control media coverage, while police have considerable powers to detain anybody who raises a public fuss.
European stocks and U.S. futures rebounded on Tuesday after their worst day in months, when markets were rocked by fears that a potential default at the property giant China Evergrande Group would send shock waves through global markets.
The S&P 500 was set to open nearly 1 percent higher. On Monday it dropped 1.7 percent, its worst day since May. The Stoxx Europe 600 rose 1.1 percent, rebounding from a 1.7 percent slump the previous day.
The recovery was weaker in Asia. The Hang Seng index rose just 0.5 percent after the Hong Kong-based index dropped 3.3 percent on Monday.
Playing catch up, Japan’s Nikkei 225 dropped 2.2 percent on Tuesday. It was closed on Monday for a holiday, along with several other major Asian markets.
Global government bond yields rose as investors sold some of their safer assets. The yield on 10-year Treasury notes rose two basis points, or 0.02 percentage points, to 1.33 percent.
Evergrande has huge debts and an interest payment of more than $80 million due this week, and so far there is little indication Beijing will come to its rescue.
Analysts at Mizuho, a Japanese bank, said Evergrande was a casualty of the Chinese government’s policy goals of reducing inequality, “where a property market rally is therefore undesirable.†And so, China is imposing tight credit conditions to rein in risky borrowing habits of property developers, and potentially more taxes.
These measures could slow China’s economy and reduce consumer demand for foreign goods. The risk of this happening hadn’t been fully considered by investors in American and European stock markets, the analysts said.
This week, investors still need to navigate a packed schedule of central bank policy decisions, particularly the Federal Reserve’s meeting on Wednesday, when policymakers are expected to signal when they might scale back the central bank’s massive bond-buying program. The purchases have helped prop up the economy and the stock market during the pandemic.
After the Fed meeting, “assuming the Fed avoids advocating for an excessively tight monetary policy, demand for risk assets should return,†the analysts at Mizuho wrote.
The Organization for Economic Cooperation and Development said on Tuesday that a global economic recovery from the pandemic was finally taking hold, but it scaled back its forecast for worldwide economic growth and warned that the rebound was benefiting wealthier countries more than the developing world as vaccine distribution occurs at an uneven pace.
Countries that have made big strides toward vaccinating most of their populations are bouncing back much more quickly than those that are still struggling to obtain shots, the O.E.C.D. said, raising a host of related economic problems that are affecting global supply chains and pose a risk for the future.
“The global shock that pushed the world to the worst recession in a century is now fading, and we’re now projecting the recovery will bring growth back to its pre-crisis trend,†Laurence Boone, the organization’s chief economist, said in a news briefing.
But vaccination rates remain varied, and many low-income countries and emerging markets except China are still far behind, Ms. Boone added. “A failure to vaccinate globally puts all of us at risk,†she said.
The warnings came as the O.E.C.D. released its semiannual economic forecast, in which it lowered its outlook for global growth, for the United States economy and for emerging markets, but raised its outlook for Europe.
The global growth outlook for 2021 was revised down slightly to 5.7 percent, from 5.8 percent.
The organization, which is based in Paris, said that the United States would grow at a 6 percent pace, down from a 6.9 percent forecast in May, while the eurozone was expected to expand by 5.3 percent, up from previous expectations of 4.3 percent growth. Slower growth in Germany is expected to be offset by faster than expected rebounds in France, Italy and Spain.
Two years into a relentless pandemic, the world economy remains awash in logistical difficulties. Factories in Asia are struggling to satisfy demand for their products. Ports are short of shipping containers and healthy hands to unload them. Trucks are idled for lack of drivers, with warehouses overwhelmed by goods.
And the continuing disruption to factory production and bottlenecks in shipping are leaving nonprofit groups short of goods for vulnerable communities worldwide, Peter S. Goodman reports for The New York Times.
In Haiti, one of the world’s poorest countries, an effort to increase household incomes is confronting a new problem stemming from the upheaval — a shortage of shoes.
The Haitian American Caucus, a nonprofit organization, imports donated, used shoes from the United States and sells them at low-cost to women who hawk them on sidewalks and in markets, earning crucial cash for their families.
The caucus is distributing almost 100,000 pairs of shoes a month, but it could manage four times as many if only more inventory arrived, said its executive director, Samuel Darguin.
“That pair of shoes represents so much more,†he said. “It represents a mother being able to send a kid to school, being able to afford health care and feed her family maybe two meals a day instead of one.â€
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Royal Dutch Shell sold its oil and gas production in the Permian Basin, the biggest American oil field, to ConocoPhillips for $9.5 billion in cash on Monday. The deal marks a turning point for Shell, which had put considerable effort into developing the field since buying acreage from Chesapeake Energy nine years ago, expanding its production to about 200,000 barrels a day. The sale is also the latest sign that Shell, like other European oil companies, is under pressure to sell off oil and gas production and move toward producing cleaner energy in response to growing concerns about climate change among investors and the general public.
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Activision Blizzard, the video game maker behind Call of Duty and other major franchises, said on Monday that the Securities and Exchange Commission was investigating the company over “disclosures regarding employment matters and related issues.†A press officer for Activision said the S.E.C. had issued subpoenas to the company and several current and former employees, but did not offer more details on the focus of the investigation. The company is cooperating with the inquiry, the official said in an emailed statement.
Erin Griffith (@eringriffith) and Erin Woo (@erinkwoo), two of our tech reporters, are covering the trial of Elizabeth Holmes, who dropped out of Stanford University to create the blood testing start-up Theranos at age 19 and built it to a $9 billion valuation and herself into the world’s youngest self-made female billionaire — only to flame out in disgrace after Theranos’s technology was revealed to have problems.
Follow along here or on Twitter as she is tried on 12 counts of wire fraud and conspiracy to commit wire fraud. The trial is generally held Tuesdays, Wednesdays and Fridays.
36 minutes ago
Erin Woo
With that, Judge Davila is ending Gangakhedkar’s testimony for the day and instructing jurors not to consume media content about the trial, as always. The trial will resume on Tuesday — Erin Griffith will be at the courthouse to bring you live updates.
38 minutes ago
Erin Woo
We are now onto cross-examination. Holmes’s lawyer is questioning her about G.S.K.’s study of Theranos’s assays, pointing out that the study promoted her work. “The Theranos system eliminates the need for a lab and provided quality data,†the G.S.K. memo said.
58 minutes ago
Erin Woo
Despite having signed an N.D.A., Gangakhedkar printed out some documents and took them home when she left Theranos. “I was worried that I would be blamed,†she testified.
1 hour ago
Erin Woo
Three days after the email from Balwani, Gangakhedkar sent Holmes her resignation email. She testified that she was “very stressed and unhappy and concerned†with the planning of the Walgreens launch.
1 hour ago
Erin Woo
In an email from Balwani to Gangakhedkar, with Holmes copied, Balwani said the software team had been working until 3:07 a.m., but that the Edison blood-testing devices Gangakhedkar’s team worked on were “all sitting idle.†This was an example of the pressure they were under, Gangakhedkar said.
3 hours ago
Erin Woo
And, with that, Cheung has been dismissed. The government is calling Surekha Gangakhedkar now, a former Theranos team manager.
3 hours ago
Erin Woo
The government is now asking questions about a document that says, among other things, that Theranos’s devices “can be operated with minimal training†and that its results have “precision and accuracy equivalent to traditional clinical laboratory analyzers.†Neither is true, Cheung says.
4 hours ago
Erin Woo
Cheung said they were constantly having to recalibrate the machines, which made results take 2-3 days rather than the couple hours promised. “We had people sleeping in the car because it was taking too long,†she said.
4 hours ago
Erin Woo
Cheung just said she “became concerned about a month in†with the vitamin D samples, in November of 2013. She was concerned about the performance of the tests and that they were being used on patient samples.
4 hours ago
Erin Woo
Defense is done with cross-examination, after showing Cheung Theranos policy documents she said she’d never seen. The government is now asking questions again for redirect.
5 hours ago
Erin Woo
Holmes’s lawyer is asking Cheung a lot of questions about quality control checks that occurred on the Theranos devices. “There is a recognition that some errors would happen and this was the policy on how to deal with those errors,†he said.
5 hours ago
Erin Woo
Erika Cheung is now taking the stand as cross-examination continues.
6 hours ago
Erin Woo
The update you’ve all been waiting for: The judge is STILL pronouncing it ther-AH-nos.
6 hours ago
Erin Woo
In the courthouse now for another day of the Elizabeth Holmes trial. We’re expecting to wrap up testimony today from Erika Cheung, one of the key whistleblowers in the case.
1 day ago
Erin Griffith
That’s it for today.🩸💉⚖️
1 day ago
Erin Griffith
So far the theme of the cross-exam of Cheung seems to be using excruciatingly arcane details about the processes and procedures of the Theranos lab to show that its work was very complicated, involving lots of smart, pedigreed people.
2 days ago
Erin Griffith
Cheung testified that in meetings about quality control failures, Theranos’s lab directors ignored the most obvious possible reason for the failures: “The Edison devices didn’t work.â€
2 days ago
Erin Griffith
Trial gear alert: A reporter brought their own binoculars to see the exhibits on the TV screens.
2 days ago
Erin Griffith
Erika Cheung is back on the stand.
She described Theranos’s practice of demoing blood tests for V.I.P.s, where some of the results came from Theranos machines and others from Siemens analyzers.
2 days ago
Erin Griffith
At this point we have heard lawyers and witnesses pronounce “Theranos†hundreds of times, making me start to wonder whether judge is trying to mess with us by sticking to his “ther-AHHHHH-nos†pronunciation.
2 days ago
Erin Griffith
I should note the woman who clapped and yelled “you’re a good mom!†at Holmes yesterday suddenly stormed out of the courtroom after Judge Davila warned everyone that yelling stuff like that in front of any jurors could cause a mistrial. I don’t see her here today!
2 days ago
Erin Griffith
Elizabeth Holmes’s entourage is down to just her mom today.
