Dollar retreats as Evergrande scare eases, cryptos remain depressed, Fed tensions rise

Here is what you need to know on Tuesday, September 21:

Some calm has returned to markets early on Tuesday after Monday’s massive Evergrande-related selloff. The dollar is off the highs across the board. Uncertainty about Chinese policy prevails and is joined by tensions ahead of Wednesday’s Fed decision. Canadian PM Trudeau has been reelected and cryptos remain depressed. 

Evergrande issue: China’s second-largest real-estate company remains in dire financial straits but a growing chorus of banks such as Barclays, UBS, and Citi says that this is not a “Lehman moment” for the world’s second-largest economy. While Evergrande will likely miss another debt payment and even go under, markets seem less fearful of contagion to the wider Chinese economy and the global economy.

S&P 500 futures are pointing to a bounce after Friday’s 1.7% fall on Monday, the worst since May. The safe-haven dollar is off the highs, with EUR/USD bouncing from 1.17 and GBP/USD nearing 1.37 once again. Gold is changing hands above $1,760, recovering from the lows as US 10-year Treasury yields cool.

China remains on holiday on Tuesday, with all eyes on the People’s Bank of China (PBOC) meeting on Wednesday critical to the next steps in the Evergrande drama.

PBoC September Preview: Will policymakers step in to ease Evergrande fears?

The Federal Reserve begins its two-day meeting on Tuesday and is set to announce no imminent changes to the policy on Wednesday. Softer inflation and a disappointing jobs report will likely deter Fed Chair Jerome Powell and colleagues from announcing tapering of the bank’s $120 billion/month bond-buying scheme.

However, Powell could signal a move coming later this year, despite concerns about the virus, Evergrande and supply-chain issues. He may soften such a signal by spreading the process. 

See Fed Preview: Three ways in which Powell could down the dollar, and none is the dot-plot

Canadian Prime Minister Justin Trudeau won reelection but failed to achieve an absolute majority, his aim in calling a snap election. USD/CAD is trading under 1.28, falling from the highs in a move related more to the Evergrande ease than anything else. 

The US will open up to vaccinated travelers from Europe and other countries from November, a step that points to a sign of a return to normality. COVID-19 cases are falling in America, but remain above levels recorded in Europe. 

Cryptocurrencies have failed to recover from the Evergrande-related sell-off. One reason is a report that Gary Gensler, the SEC Commissioner, is set to enact a hard line against digital assets. Bitcoin is trading below $43,000, Ethereum under is struggling around $3,00 and Ada is at around $2.10.