As we approach the new trading day, U.S. stock futures have moved into the red, suggesting the market may extend yesterday’s selloff. In overnight trading, markets in Asia were mostly down. Meanwhile, the major European indexes are all in the loss column. Elsewhere, oil prices have edged higher, with West Texas Intermediate up 0.2%, to around $79.70 a barrel.
Although corporate earnings season is in full force, traders’ attention yesterday was diverted by a more important development. After the market close on Tuesday, Fitch (a leading provider of credit ratings) cut the United States’ sovereign default rating from AAA to AA+. Fitch had previously placed the country’s credit on negative watch back in May, due to the debt ceiling standoff. The rating firm now expects fiscal deficits and debt levels to continue to go up over the next few years, due to the government’s apparent unwillingness to tackle key fiscal issues. This was the United States’ first downgrade by a major rating agency in 12 years.
The announcement caused bond prices to fall and, as yields move inversely to prices, Treasury yields rose, with the rate on the 10-year note climbing to 4.077%, the highest close in nearly nine months. Stocks also spent most of the day in retreat. When the dust finally settled, the Dow Jones Industrials Average was down 348 points, or 1%, the S&P 500 lost 63 points (1.4%), and the tech-focused NASDAQ took the biggest hit, shedding 310 points (2.2%).
On the economic news front, later this morning the Institute for Supply Management will issue its report on U.S. non-manufacturing (services) business activity for July, with analysts widely expecting the index to show further expansion. Around the same time, the U.S. Census Bureau is due to release the tally for factory orders in June. The consensus there is calling for an increase of around 2.2%, versus the 0.3% uptick the month before. Friday wraps up the week with the latest on the employment situation, including nonfarm payrolls, the unemployment rate, and hourly wages. All three are widely expected to show flat sequential comparisons to June’s figures. - Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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