US stocks faced a setback in the overnight trade, the profit-taking move came on the heels of five months of bullish runs, driven by Fitch’s downgrade of US government debt. The rating agency knocked the US from AAA to AA+ after markets closed on Tuesday, pointing to the projected fiscal downturn over the coming three years and escalating government debt.
The Dow Jones dipped approximately 1%, the S&P 500 slipped around 1.4%, and the tech-heavy Nasdaq nosedived almost 2.2%. In the bond market, the US 10-year yield marked a 2.9 basis points hike to 4.08% on Wednesday, contrasting with the two-year rate that fell by the same number of basis points to 4.88%.
Positive employment data appeared in the US, with the private sector outperforming job creation predictions in July, particularly within leisure and hospitality sectors. Nevertheless, wage growth continued its slowing trend, as reported in ADP’s National Employment Report. The private job sector saw a growth of 324,000 last month, overshadowing consensus projections for a 185,000 boost.
Despite a peak in net short dollar positions – the highest since March 2021 – the Dollar had rallied nearly 3% from its lowest point in over a year on July 14. The rise came amidst diminishing expectations for Federal Reserve interest rate slashes. According to a Reuters poll featuring 70 FX strategists, the recent EUR/USD rally likely reached its zenith, expecting to hover around the current level of 1.10, reflecting the belief that the European Central Bank has finished its cycle of monetary easing.
In stark contrast, the Bank of England, which is anticipated to announce a 25-bps rate hike today and potentially even a heftier 50 bps increment, is predicted to surpass its major counterparts in terms of rate hikes. GBP/USD, one of this year’s star performers, is expected to climb slightly to 1.28 from its current level of 1.27. However, the USD/JPY, which has risen about 9% this year, could fall by over 6% to 135 as the Bank of Japan mulls further adjustments to its yield curve control.
In the commodity markets, crude oil prices ticked up in early Asian trade as investors balanced the bullish US inventory data against the probable extension of OPEC+ output cuts. American commercial crude stockpiles slid by a significant 17 million barrels through the week ending July 28, dramatically outpacing analysts’ expectations and signaling that global demand continues to outstrip supply.
Analysts expect the OPEC+ group, which meets tomorrow, to maintain its current oil output policy. The assumption is based on Saudi Arabia’s expected extension of its voluntary 1 million bpd cut for September and Russia’s announced plans to trim exports by 500,000 bpd in August. As a result, Brent crude futures edged up 0.32% to $83.47 a barrel this morning, with West Texas Intermediate (WTI) crude rising 0.36% to $79.78 a barrel.
Gold for December delivery closed at $1,975.00/oz, shedding $3.80, and is currently hovering at %1971.40/oz in early Asia trading. Spot gold fell to a morning low of $1,933.65/oz before recovering to $1,963.30/oz. Spot silver also took a hit, sliding more than 2% to $23.65/oz in New York before stabilizing at $23.71/oz in Asia.
Most significant digital assets mirrored the trend in US equity markets with losses in high volumes on Wednesday. Bitcoin (BTC/USD) was trading at $29,178, marking a 0.2% decline in the last 24 hours after hitting a day low of $28,946. Ethereum (ETH/USD), meanwhile, fell 0.5% to $1,841 in the past 24 hours, trimming its year-to-date advance to 53%.