US stock futures rise as Evergrande contagion fears subside, while supply constraints boost oil to three-year highs


Traders work on the floor of the New York Stock Exchange

US stock futures looked set for a higher open on Monday, as investors began to price in the potential fallout from property developer Evergrande's debt crunch, which paved the way for an improvement in risk appetite.

"Markets seem to be rapidly pricing in Evergrande as a fully controllable outcome that won't spill over China's borders into the wider financial universe," Jeffrey Halley, a senior market analyst at OANDA, said.

Futures on the Nasdaq were about flat, while those on the Dow Jones rose 0.4% and the S&P 500 rose 0.3% as of 4:30 a.m. ET, suggesting a slightly higher start to trading later in the day.

Debt-laden Evergrande, which had investors worried all of last week, passed a Thursday deadline to pay $83.5 million in dollar-bond interest, but bondholders got no word from the company about the payment. That has left them wondering whether they would have to absorb massive losses after the 30-day grace period, according to Reuters. Another $47.5 million coupon is due this week on a second dollar bond.

"It appears that the 30-day grace period will be used to its fullest," Halley said.

Shares in Evergrande's electric-vehicle subsidiary plunged 25% in Hong Kong on Monday after warning it faces an uncertain future unless it receives a swift cash injection.

China's central bank injected more liquidity into the domestic banking system with another 100 billion yuan ($15 billion) in cash on Monday. This follows a net liquidity injection of 510 billion yuan ($78 billion) in the previous six days.

"It seems that a dialing-down of contagion fears, with some subtle assistance from China, has been an irresistible lure for the buy-the-dippers," Halley said.

The Shanghai Composite lost 0.8%, while Tokyo's Nikkei and Hong Kong's Hang Seng were about flat.

In Europe, German shares hit a 10-day high after the centre-left Social Democrats narrowly won their first national election since 2005, beating outgoing Chancellor Angela Merkel's party in federal elections.

The tight race means there could be months of negotiations between various parties to form a coalition, but markets are not expected to react significantly to this uncertainty, Steven Bell, chief economist at BMO Global Asset Management, said.

Frankfurt's DAX rose 0.9%, outperforming other regional indices, while the Euro Stoxx 50 rose 0.5%, and London's FTSE 100 gained 0.3%.

The UK is dealing with a panic-buying gasoline crisis as up to 90% of gas stations have run out of fuel due to a shortage of truck drivers. Nerves over energy shortages continue to add momentum to oil's price rally.

Brent crude rose 1.3% to $78.25 a barrel, its highest level since October 2018, and West Texas Intermediate rose 1.3% to $74.94 a barrel after logging a run of five weekly gains.

Broader concern over tightness in energy markets, particularly for natural gas, is spilling over into the oil market, according to ING strategists Warren Patterson and Wenyu Yao.

"With OPEC+ struggling to meet its present production targets and US shale production returning at a slow pace from last year, global energy woes are set to continue as the Northern hemisphere winter approaches, leaving the case for higher oil constructive," OANDA's Halley said.

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