Fitch Downgrade Kicks in – Nasdaq down over 2%
Asian stock markets are set to open well on the back foot today after US equities reacted to the US downgrade by rating agency Fitch. All three of the major US indices closed well in the red, the Nasdaq leading the way, closing down 2.17% followed by the S&P, down 1.38% and the Dow which dropped 0.98% on the day. Treasury yields jumped with the benchmark 10-year trading up to levels not seen since last November and the dollar climbed against all the majors with the antipodean currencies notably breaking into fresh ranges. Oil also took a breather from its recent gains, with WTI dropping 1.9% and Brent losing 1.64%.
Stock Bulls Now Looking in the Rear View Mirror
US stock markets have enjoyed a stellar year so far, much to the delight of many and to the surprise of some, but recent events have led some equity bulls to start looking in the rear-view mirror rather than giving last month’s lows a mere glance. The Fitch downgrade is seen by many as the ratings agency just realigning with the market but there are a few telling indicators that could be forewarning of some serious storm clouds on the horizon. Inverted yield curves have been with us for a while and usually predict an upcoming recession but last night shorter dates rallied and steepened the curve further and this usually leads to a drop in the equity market. Also yesterday, we had yet another strong jobs number from the ADP and these numbers are not supportive of the Fed cutting rates anytime soon. On top of this, we now are hearing from many bearish commentators throwing the towel in after the market’s first half rise and to old heads in the market that could be the strongest indicator of all! All eyes will move to NFP on Friday where a strong print again could be the final straw for some long positions.
Bank of England in Focus Today
Volatility has increased dramatically over the last few sessions and if today’s event calendar is anything to go by then it is not likely to drop anytime soon. In Asia today we have Australia’s Trade balance data out before traders swiftly turn their focus to the Chinese market and the release of the latest Caixin Services PMI number. As Europe opens key Swiss inflation data is due out with their CPI number predicted to show a 0.1% decrease month-on-month, however, the main event for the day comes a few hours later with the release of the Bank of England’s latest interest rate update. The US session sees the usual weekly employment claims numbers as well as the ISM Services PMI data release all coming on top of key earnings reports from both Apple and Amazon.
