China may see its first local government bond defaults, Fitch has warned, amid concerns over the high levels of debt in the world's second largest economy.
However, the rating agency said widespread local government financing vehicle (LGFV) defaults are unlikely given that the authorities have various tools at their disposal to limit the contagion. The rating agency wrote:
The first defaults on public bonds by Chinese local government financing vehicles (LGFVs) are becoming more likely, and will probably trigger a repricing of the market, says Fitch Ratings. However, widespread LGFV defaults remain a tail-risk, given that the authorities continue to rely on local government investment - supported by LGFVs - to hit economic growth targets, and have a broad spectrum of policy tools to limit default contagion......
However, the authorities are in a position to prevent systemic defaults. In particular, the government's pervasive ownership and influence across the financial system provide other tools to limit contagion. The use of fiscal resources to bail out LGFVs would be a last resort, given recent policy efforts to break perceptions of implicit state support, but credit could be directed toward the LGFV sector if required, which would contain the risk of a market panic.
The move comes after S&P Ratings last week cut China's sovereign debt rating one notch to A plus from AA minus, its first such action since 1999, saying a long period of borrowing has increased China's economic and financial risks. S&P also lowered its long-term credit rating to A plus from AA minus on three foreign banks.
CBOETV - Jamie Tyrrell, Group One Trading, discusses the largest trade in VIX listed history, a 2.1 million contract trade.
Stock futures are little changed after major U.S. averages closed down slightly on Monday, though the tech heavy Nasdaq Composite underperformed, led by a decline in Internet and semiconductor stocks, while Apple shares fell a 4th straight session. Energy was among the biggest gainers on Monday, as oil prices jumped a 4th straight session with Brent prices closing at more than 2-year highs. A fresh flare up in tensions between the U.S. and North Korea kept markets in check. North Korean foreign minister Ri Yong Ho, speaking in New York on Monday, described President Donald Trump’s recent comments about North Korea as “clearly a declaration of war,” and said Pyongyang has the right to shoot down U.S. bombers. The main indexes added to losses immediately after the foreign minister’s comments. This morning, oil prices are paring recent gains while defensive assets such as gold are paring their gains from yesterday. The euro extended its fall against the dollar to a one-month low, after its worst day of the year. In Asian markets, The Nikkei Index fell -67 points to settle at 20,330, the Shanghai Index gained 2 points to close at 3,343 and the Hang Seng Index rose 12 points to settle at 27,513. In Europe, the German DAX is up around 25 points at 12,620, while the FTSE 100 is flat around 7,300.
Market Closing Prices Yesterday
Events Calendar for Today
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