In the Morning Market Update on August 2, 2023, the Asian stock market saw a decline as Fitch Ratings downgraded the US sovereign rating from AAA to AA+. This move had a significant impact on market sentiment, particularly after a recent strong performance, and investors sought refuge in safe-haven assets.
- Fitch's Rating Cut Boosts Demand for Safe-Haven Assets
- Japanese Stocks Lead Declines as Yen Strengthens
- Profit-Taking Amid Broad Uptrend in Asian Equities
- Fitch's US Downgrade to AA+ from AAA Has Little Long-Term Impact on US Assets
- Investors Take Cues from 2011 Similar Event, Seek Havens like Treasuries
- Dollar Weakens Against Most G10 Peers, but Weakness Seen as Temporary
- Oil Prices Rise Amid Steeper-Than-Expected Drawdown in US Crude Inventories
- Saudi Arabia Expected to Extend Voluntary Oil Output Cut for Another Month
- Apple Likely to Report Dip in iPhone Sales, Augmented Growth Through AI May Boost Stock
- Global Markets See Largest Year-to-Date Gains Since 2009 Despite Notoriously Bad Months Ahead
The downgrade news was announced before markets opened in Asia, causing initial turbulence that pushed Treasuries higher. However, the market quickly stabilised, and the two-year yield ended up down by just 1 basis point. The yen and the Swiss franc strengthened against the dollar, which further added to the bearish sentiment in the Asian stock markets.
Japanese stocks were the hardest hit in the region as a stronger yen adversely affected the outlook for corporate profit. South Korean and Australian stocks also experienced declines, while equities in Hong Kong and mainland China showed some wavering. Some analysts attributed the pullback to profit-taking, as the Asian equities had experienced a broad uptrend following China’s Politburo meeting.
Experts and investors alike shared mixed views on the long-term effects of the US sovereign rating downgrade. While some believe it will have little impact on the status of US assets over the longer term, citing the lack of viable alternatives and the robust growth of the US economy, others drew comparisons to a similar event in 2011. Back then, S&P Global Ratings removed the highest rating for the US following a debt-ceiling crisis, which triggered a selloff in risk assets worldwide but boosted demand for Treasuries.
The US stock market also showed some weakness in the futures market, with contracts for the S&P 500 and Nasdaq 100 down by 0.2% and 0.3%, respectively. The S&P 500 had a small loss the previous day, which marked a pause in the impressive rally that had driven the stock market up nearly 30% from its October lows.
The currency market experienced the dollar weakening against most of its Group-of-10 peers. However, the decline in the dollar index was modest, at less than 0.1%. Some strategists believed that the current weakness in the dollar would be temporary.
Oil prices continued their rally, trading near their highest levels since April, after industry data showed a much steeper-than-expected drawdown in US crude oil inventories. This signaled that the market was tightening, which was supported by deep production cuts from Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries (OPEC). Analysts expected Saudi Arabia to extend its voluntary oil output cut of 1 million barrels per day (bpd) for another month, which could further support the rising oil prices.
The Morning Market Update also highlights the upcoming earnings report of Apple, the world's most valuable firm. Analysts predicted a dip in iPhone sales for the April-June quarter due to shoppers waiting for a new model amid a slow economy. However, there was optimism regarding Apple's use of artificial intelligence to augment growth, which might positively impact the stock. Apple's shares had already gained significantly so far that year, outperforming the tech-heavy Nasdaq Composite.
Looking ahead, various key events were anticipated for the week, including China's Caixin Services PMI and Eurozone's S&P Global Eurozone Services PMI and PPI on Thursday, followed by the Bank of England rate decision and US initial jobless claims, productivity, factory orders, and ISM Services on the same day. On Friday, the Eurozone retail sales and the US unemployment rate and non-farm payrolls were expected.
Despite the recent volatility and potential market downturn, the global markets had experienced their largest year-to-date gains since 2009, with the MSCI World Index showing a 16.2% increase. This growth was attributed to investor optimism regarding slowing global inflation, hopes for more stimulus from China, and the end of the Federal Reserve's rate-hiking cycle.
As always, when you Learn Forex Trading it's important to note that market conditions can change rapidly, and the information provided is for informational purposes only. Investors are advised to conduct their own research and seek professional financial advice before making any investment decisions.
Trading and investing carry financial risks and could lead to partial or complete loss of funds. Invest only what you can afford to lose and seek advice from an independent financial advisor if you have doubts about your investment choices.