InvestMacro

By JustMarkets

The US stock indices were traded yesterday without any unified dynamics. At the close of the stock exchange yesterday, the Dow Jones Index (US30) rose by 0.20%, and the S&P 500 Index (US500) fell by 0.27%. The NASDAQ Technology Index (US100) closed yesterday negative by 0.43%.

The US service sector continues to perform relatively strongly, but manufacturing is struggling, as evidenced by the ninth consecutive decline of the ISM index. At the same time, residential construction is picking up due to a shortage of homes for sale, and non-residential starts are struggling due to tighter credit conditions. The July ISM manufacturing index rose to 46.4 from 46.0 (consensus 46.9), but given that it is below the 50 level, this still indicates a contraction in the sector, and this is the ninth consecutive month of contraction. The New Orders Index rose to 47.3 from 45.6 (a contraction, but slower than in June), and the Manufacturing Index ISM jumped to 48.3 from 46.7. Despite the rising reading, all components related to manufacturing activity remain in contraction territory.

The US labor market has begun to show the first signs of cooling. According to the JOLTS report, job openings fell to 9.582 million in June from a downward revised May figure of 9.616 million. The consensus had expected a result of 9.6 million. Also weak was the employment figure, which fell to 44.4 from 48.1, the lowest level in three years. Only 17% of industries reported an increase in hiring, down from 33% in June. Such data suggests Friday’s Nonfarm Payrolls report will be weak.

Pfizer Inc (PFE) reported mixed quarterly results. Profit exceeded forecasts, but revenue fell short of expectations. The company also lowered its full-year earnings outlook, warning of near-term revenue challenges. Merck & Company Inc (MRK), meanwhile, reported a narrower loss as second-quarter revenue exceeded analysts’ forecasts, helped by higher sales of cancer drug Keytruda. Uber Technologies Inc (UBER) shares rose more than 2% after its third-quarter outlook was better than the second-quarter results but missed analysts’ forecasts on both the top and bottom lines.

Equity markets in Europe fell yesterday. Germany’s DAX (DE40) decreased by 0.85%, France’s CAC 40 (FR40) fell by 0.85%, Spain’s IBEX 35 (ES35) lost 0.89%, and the UK’s FTSE 100 (UK100) closed negative by 0.43%.

Oil prices rose in Asian trading on Wednesday, remaining at more than three-month highs, as industry data pointed to a much larger-than-expected decline in US inventories over the past week.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) increased by 0.92% yesterday, China’s FTSE China A50 (CHA50) was up by 0.38%, Hong Kong’s Hang Seng (HK50) decreased by 0.34% on Tuesday, and Australia’s S&P/ASX 200 (AU200) was positive by 0.54%. Most Asian stocks started to fall at the open on Wednesday, with technology stocks facing profit-taking after Fitch unexpectedly downgraded the US sovereign rating.

The Bank of Japan’s decision last week to change its policy of controlling bond yields was aimed at making the massive stimulus more sustainable, not a retreat from ultra-low interest rates, BOJ Deputy Governor Shinichi Uchida said Wednesday. Uchida also said there is still a long way to go before conditions are ripe for raising the short-term interest rate from the current level of minus 0.1%.

New Zealand’s unemployment rate rose in the second quarter, and wage inflation showed signs of slowing, suggesting that the labor market is starting to weaken after continuous rate hikes by the Central Bank. The unemployment rate rose to 3.6% from 3.4%. Economists expect further deterioration in New Zealand’s labor market conditions.

S&P 500 (F)(US500) 4,576.72 −12.24  (-0.27%)

Dow Jones (US30) 35,630.55  +71.02 (+0.20%)

DAX (DE40)  16,307.64 −139.19  (-0.85%)

FTSE 100 (UK100) 7,666.27 33.14 (-0.43%)

USD Index  102.23 +0.37 (+0.36%)

• – New Zealand Unemployment Rate (q/q) at 01:45 (GMT+3);
• – Japan Monetary Policy Meeting Minutes at 02:50 (GMT+3);
• – US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+3);
• – US Crude Oil Reserves (w/w) at 17:30 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By ForexTime

The US has lost its top-tier AAA credit rating as assigned by Fitch Ratings, now downgraded down one level to AA+.

US Treasury Secretary Janet Yellen “strongly disagreed” with Fitch’s decision, blasting it as “arbitrary and based on outdated data”.

But that hasn’t stopped global markets from adopting a slightly risk-off mode for the time being:

• US stock futures are falling to extend August’s losses so far
• Gold is edging higher though still trading around the mid-$1900s
• The safe haven Japanese Yen is the only G10 currency to climb against the US dollar

However, the full fallout directly from this downgrade should prove to be limited and short-lived.

Read on to find out more.

What does Fitch Ratings do?

Fitch Ratings assigns a credit rating to various entities that issue debt, ranging from governments to corporates.

• Fitch’s highest rating is ‘AAA’, which means the country/company has the lowest risk of defaulting, i.e. has an “exceptionally strong capacity” to meet its financial commitments, such as paying interest on a bond.
• The lowest rating is ‘D’, which is assigned when the debt issuer has entered into bankruptcy proceedings.

This credit rating points to the financial strength and ability to meet debt commitments, such as making interest payments on bonds issued.

How do investors use these credit ratings?

Global investors rely on these credit ratings to decide which country’s debt to buy:

• Debt with the ‘AAA’ through ‘BBB’ ratings are deemed as investment grade (low to moderate risk of default).
• Debt issuers with ‘BB’ and lower ratings are deemed as “speculative grade” (high risk of default, i.e. not able to meet its payment obligations).

  Investors with a higher tolerance for risk may buy such debt with lower credit ratings, as they tend to offer higher yields to compensate investors for the greater risk of default.

In short, the higher the credit rating, the “safer” the investment is deemed, and vice versa.

Why was the US downgraded?

The US was downgraded because Fitch Ratings expects the following:

• “Fiscal Deterioration”: US government’s financial strength to worsen over the next 3 years.
• “Rising Deficit”: US government set to spend more money at a faster pace than it can generate income (taxes), resulting in a bigger budget gap.
• “Erosion of governance”: the repeated debt-ceiling standoffs in US Congress elevates the risk of a first-ever US default, which was only just narrowly avoided this past May.

This downgrade is a follow-through on Fitch’s warning, made back in May, amidst the US debt ceiling drama.

Fitch Rating’s full statement can be found here.

Has this happened before for the US?

Yes, almost exactly 12 years ago.

The US experienced its first-ever credit rating downgrade back in August 2011, by S&P – another credit ratings agency.

Hence, given that Fitch’s move is not unprecedented (we’ve seen it before over a decade ago), nor does it unveil anything startling that market’s don’t already know, that should explain the relatively muted reaction in the markets.

Are markets reacting as expected?

Yes, but not without a tinge of irony.

Amidst the risk-off moves mentioned at the top of this article …

the US dollar – the world’s “preeminent” reserve currency – is also gaining against other currencies, including many of its G10 and emerging-market counterparts.

Why is the USD’s strength ‘ironic’?

Typically, if a country’s credit rating is downgraded, the initial reaction would be for investors to shy away from its assets and currency.

But this is the United States that we’re talking about here – the world’s largest economy!

After all, global financial markets and investors have long seen US Treasuries (debt issued by the US government) as the “golden-standard” for risk-free assets.

Hence, investors have been flocking to shorter-term US Treasuries (yields on 2-year and 5-yearTreasuries are moving lower) as such “safe haven” assets help investors protect their wealth amid times of uncertainty.

Ironic, given that Fitch Rating’s downgrade actually casts doubt over the US government’s ability to meet its debt obligations.

How long will the risk-off mode last?

Not long, probably.

At least in terms of whatever market reaction that can and should be attributed to today’s decision by Fitch Ratings.

After all, long-time investors will point to how the S&P 500 – the benchmark for US stock markets – recovered all its losses within 6 months after that first-ever US credit ratings downgrade back in August 2011.

Back then, the S&P 500 surged by nearly 30% between that August 2011 intraday trough until that peak in early-April 2012.

In today’s context, investors appear to have greater concerns at present.

The likelihood of a global recession and the risk of further Fed rate hikes – these factors are set to be the greater catalyst for a sustained risk-off mode across global financial markets, rather than Fitch’s downgrade of the US.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

By JustMarkets

At yesterday’s stock market close, the Dow Jones Index (US30) increased by 0.28%, while the S&P 500 Index (US500) was up by 0.15%. The NASDAQ Technology Index (US100) closed positive by 0.21% on Monday. The Dow Jones Index closed higher for the second consecutive month. Investors are waiting for the US Federal Reserve to end its tightening cycle soon. But the market volatility indicator VIX, which is known in trading circles as the fear indicator, is still near this year’s lows and at its lowest point since the global pandemic began in 2020. That means a correction could occur on stock indices in the near term.

Energy stocks are rising on the back of Chevron’s upgrade. Energy stocks were boosted by a more than 3% increase in shares of Chevron (CVX) after Goldman Sachs upgraded the major oil company’s rating, indicating its strong growth potential. Energy stocks were also boosted by a rise in oil prices to multi-month highs amid expectations of tightening supply and rising demand.

Johnson & Johnson (JNJ) fell by 4% after a court on Friday rejected the company’s plan to put its subsidiary LTL Management into bankruptcy to deal with tens of thousands of lawsuits alleging the company’s talcum powder causes cancer.

Equity markets in Europe traded flat yesterday. Germany’s DAX (DE40) decreased by 0.14%, France’s CAC 40 (FR40) added 0.29%, Spain’s IBEX  5 (ES35) lost 0.45%, and the UK’s FTSE 100 (UK100) closed positive by 0.07%.

In the Eurozone, overall inflation fell in July, while core inflation remained unchanged. At the same time, services inflation rose again. Services inflation increased to 5.6% y/y in July from 5.4% y/y in June. An increase in services inflation is not what the ECB would like to see, as services prices are most sensitive to wage growth and could indicate that the labor market remains too tight. ECB President Christine Lagarde reiterated that the ECB could still raise rates in the future if needed, calling GDP data from Spain, France, and Germany “encouraging.” This increases the likelihood that the ECB will hold another 0.25% rate hike at its September meeting.

The growing divergence between gold futures and the spot price indicates that traders expect the Fed to complete its rate hike cycle before the end of the year, which is expected to lead to a large influx of funds into precious metals.

Asian markets rallied strongly last week. Japan’s Nikkei 225 (JP225) rose by 1.26% yesterday, China’s FTSE China A50 (CHA50) added 0.27%, Hong Kong’s Hang Seng (HK50) gained 0.82% on Monday, and Australia’s S&P/ASX 200 (AU200) ended the day positive by 0.09%. Most Asian stocks continued to rise on Tuesday. Optimism about an improving global economic outlook amid lower inflation and sustained growth in major economies is driving capital inflows into risky stocks. Sentiment for Japanese stocks was boosted by the Bank of Japan’s emergency bond purchases, raising bets that the BOJ will not be in a rush to tighten policy.

Australia’s Central Bank left its interest rate at 4.1% for the second consecutive month but warned that some more tightening may be needed to contain inflation. The Reserve Bank of Australia (RBA) forecasts core inflation to slow to around 3.25% by the end of 2024 and return to within the target range of 2-3% by the end of 2025.

S&P 500 (F)(US500) 4,588.96 +6.73  (+0.15%)

Dow Jones (US30)  35,559.53 +100.24 (+0.28%)

DAX (DE40)  16,446.83 −22.92 (-0.14%)

FTSE 100 (UK100) 7,699.41 +5.14 (+0.07%)

USD Index  101.89 +0.26 (+0.26%)

• – Japan Unemployment Rate (m/m) at 02:50 (GMT+3);
• – Australia RBA Interest Rate Decision (m/m) at 07:30 (GMT+3);
• – Australia RBA Rate Statement (m/m) at 07:30 (GMT+3);
• – German Manufacturing PMI (m/m) at 10:55 (GMT+3);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
• – Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
• – Canada Manufacturing PMI (m/m) at 16:30 (GMT+3);
• – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3);
• – US JOLTs Job Openings (m/m) at 17:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By ForexTime

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

By JustMarkets

At Friday’s close, the Dow Jones Index (US30) increased by 0.5% (+0.65% for the week), while the S&P 500 Index (US500) added 0.99% (+0.85% for the week). The NASDAQ Technology Index (US100) closed positive by 1.90% (+1.67% for the week) on Friday.

Core PCE data is the Fed’s preferred inflation gauge. The 0.5% decline from the May reading only reinforced hopes that the Fed has likely ended the current rate hike cycle. Combined with labor costs rising at the slowest pace in two years, this may explain some of the weakness in the US Dollar late last week. There is a lot of US labor market data coming out this week, including the NFP report. This data will provide another snapshot of the state of the US economy. Average hourly earnings will again be a key indicator for the Fed, as strong wage growth has been cited as a problem in the ongoing fight against inflation.

Equity markets in Europe were mostly up on Friday. Germany’s DAX (DE40) rose by 0.39% (+2.13% for the week), France’s CAC 40 (FR40) gained 0.15% (+0.96% for the week), Spain’s IBEX 35 (ES35) declined by 0.09% (+2.86% for the week), and the UK’s FTSE 100 (UK100) closed positive by 0.02% (+0.40%for the week).

This week, the Bank of England will hold a monetary policy meeting on Thursday. Analysts at HSBC expect the Bank of England to maintain a hawkish stance and raise the rate by 50 basis points to 5.50%. At the same time, JP Morgan believes that even though the Bank of England still has a lot of work to do, an increase of 25 basis points is expected.

Interest rate hikes by the US Federal Reserve and the European Central Bank are holding back gold and silver prices. However, Fed Chairman Jerome Powell and ECB President Christine Lagarde were cautious in their press conferences, reinforcing expectations that interest rates are close to peaking. This means that once the US and ECB central banks complete their tightening cycle, precious metals will receive fundamental support. Analysts predict that late 2023 and all of 2024 will be a bullish period for gold and silver on the back of a declining dollar index.

Crude oil prices (WTI and Brent) continued their upward movement. Many factors contributed to this, but primarily the weakening of the US dollar. This week will start with the release of key data from China, the NBS PMI, which is expected to push oil prices higher. In connection with the recent announcement of OPEC+ on the extension of production cuts for August, whether the organization will decide to continue the reduction in September has been raised again. Market experts are inclined to believe that the production cut will continue.

Asian markets grew steadily last week. Japan’s Nikkei 225 (JP225) gained 0.34% for the week, China’s FTSE China A50 (CHA50) jumped by 6.12%, Hong Kong’s Hang Seng (HK50) gained 5.56% for the week, and Australia’s S&P/ASX 200 (AU200) closed positive by 1.23% for the week.

On Friday, traders saw two major surprises from Japan. First, the Bank of Japan adjusted its yield curve control policy slightly and made it more flexible in its management. Second, inflation in Tokyo unexpectedly rose to 3.2% in July. But despite this, the BoJ lowered its long-term inflation forecasts, thus keeping the possibility for further easing.

S&P 500 (F)(US500) 4,582.23 +44.82  (+0.99%)

Dow Jones (US30) 35,459.29 +176.57 (+0.50%)

DAX (DE40)  16,469.75 +63.72 (+0.39%)

FTSE 100 (UK100) 7,694.27 +1.51 (+0.020%)

USD Index  101.70 -0.07 (-0.07%)

• – Japan Industrial Production (m/m) at 02:50 (GMT+3);
• – Japan Retail Sales (m/m) at 02:50 (GMT+3);
• – Japan Manufacturing PMI (m/m) at 03:30 (GMT+3);
• – China Manufacturing PMI (m/m) at 04:30 (GMT+3);
• – China Non-Manufacturing PMI (m/m) at 04:30 (GMT+3);
• – German Retail Sales (m/m) at 09:00 (GMT+3);
• – Switzerland Retail Sales (m/m) at 09:30 (GMT+3);
• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+3);
• – Eurozone GDP (q/q) at 12:00 (GMT+3);
• – Eurozone GDP (q/q) at 12:00 (GMT+3);

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.