Energy price crisis and worries over contagion from China’s Evergrande property giant have hit the markets
Earlier:
- Kwarteng says energy price cap remains in place
- FTSE 100 hits two-month low
- Evergrande contagion risks drive selloff
- Introduction: Energy price surge crisis
- Energy market crisis: what caused it and how does it affect my bills?
- Crisis at China’s Evergrande also hits markets
European stock markets are currently on track for their worst day this year, as anxiety over the fate of China’s heavily indebted property developer Evergrande rise.
The Stoxx 600 index has now fallen by 2.4% to 450.7 points, which would be the biggest daily drop since last October (beating a 2.3% fall on July 19th).
Investors are not sure whether Chinese authorities will be able to contain the fallout from a possible disorderly collapse of the heavily indebted company. The situation is made worse by the fact China will be closed in observance of the Mid-Autumn Festival until Wednesday.
But Evergrande’s Hong Kong listed shared fell a further 13% as its market cap dropped to its lower ever level as a potential bankruptcy looms large. The company was due to pay interest on bank loans on Monday and some $83.5 million in interest on Thursday for its offshore March 2022 bond. Failure to make these payments will mean default, which appears likely as Chinese authorities have apparently already told major lenders not to expect repayment.
Inflationary pressures have risen sharply due to supply bottlenecks and rapidly rising oil, gas and electricity prices. The intense heatwave in parts of southern and eastern Europe saw demand for air condition and refrigeration rise sharply, just as lockdown measures were lifted in many parts of the region.
Calmer weather meant the amount of renewable energy from wind was not sufficient. So, demand for gas has risen significantly to fuel power stations, causing gas stockpiles to fall sharply.
The Liberal Democrats say the government should consider setting up a Northern Rock-style nationalised energy company to take on the customers of energy firms that go bust.
Party leader Sir Ed Davey also called for a massive home insulation programme to help the UK prepare for the next crisis.