In a surprising move, the credit rating agency Fitch has downgraded US ratings from AAA to AA+ after the market closed on Tuesday. The decision was motivated by the anticipated fiscal deterioration over the next three years and a projected increase in the general government debt burden. Fitch predicts the general government deficit to climb to 6.3% of GDP in 2023, up from 3.7% in the previous year. This deficit growth is attributed to weakening federal revenues, new spending initiatives, and an increased interest burden. Further widening to 6.6% in 2024 and 6.9% in 2025 is expected due to slowing GDP growth and an escalating interest rate burden.
US major equity indices displayed mixed performances as trading kicked off in August. Market participants digested data showcasing a dip in job openings and the persistence of manufacturing sector contraction. The Bureau of Labor Statistics reported 9.58 million job openings in June, missing the expected 9.65 million and showing a decline from 9.62 million in May.
Moreover, manufacturing activity exhibited modest improvement in July, although it continues to contract. According to the Institute for Supply Management’s purchasing managers’ index, the sector has suffered a recession for nearly a year, with the index barely rising to 46.4 last month from 46 in June.
Nevertheless, there’s a silver lining: factory production showed signs of revival in Q2, halting two consecutive quarterly drops. Construction spending experienced an uptick, with outlays in both single and multifamily housing projects contributing to this increase.
Despite the Fed’s significant interest rate hikes, the Job Openings and Labor Turnover Survey from the Labor Department depicts tight labor market conditions.
The first trading day of August witnessed the Nasdaq Composite shedding 0.4% to close at 14,283.9, and the S&P 500 losing 0.3% to end at 4,576.7. The Dow Jones Industrial Average, however, rose 0.2% to 35,630.7. S&P 500 futures retreated by 0.3% in aftermarket electronic trading.
On Tuesday, the Dollar gained ground, as US manufacturing and construction activity in June counterbalanced a two-year low in job openings. The Dollar Index rose 0.344% to reach a fresh three-week high.
Simultaneously, the Australian Dollar experienced a sharp fall after the Reserve Bank of Australia (RBA) unexpectedly kept interest rates steady. The Japanese Yen hit a three-week low as the Bank of Japan’s modifications to its yield curve control policy continued to pressurize the currency.
Commodity markets showed mixed trends. While crude oil prices fell slightly due to profit-taking, U.S. crude oil stocks’ drop, as cited by the American Petroleum Institute, helped futures tick up in post-settlement trade. Gold and silver retreated, marking a 1.4% and 2.2% drop, respectively.
Major digital assets struggled to start the month on a strong note. Bitcoin dipped to its lowest level since June 21, while Ethereum followed a similar pattern, closing the day with a loss of 0.5%.
Despite ending July on a lower note, both Bitcoin and Ethereum remain up 76% and 54%, respectively, for the year so far.
Global Markets in Flux Amid Economic Data and Central Bank Moves
October 4, 2023
