DOWNGRADE:
- Fitch downgrades USA long-term credit rating to AA+ from AAA
- Here is what happened in markets the last time the US was downgraded: Stocks, FX and gold
- Fitch placed USA on negative watch back in May, now has cut the US rating from triple A
- EUR/USD spiking higher, USD/JPY lower after US rating downgrade
- US equity futures have dropped, hard, upon reopening after the downgrade
- Senior Biden admin official says Fitch downgrade of the USA is baseless and bizarre
- Mohamed El Erian says Fitch downgrade of the US is a strange move, likely to be dismissed
Other:
- Deutsche Bank expect +25bps rate hike from the Bank of England this week - 'close call'
- TD are expecting the US nonfarm payroll headline at +260K, well above consensus
- Goldman Sachs says Fitch US downgrade unlikely to force major selling of US Treasuries
- National Australia Bank expect one more Reserve Bank of Australia rate hike
- BOJ Deputy Governor Uchida: Japan needs to maintain easy policy
- PBOC sets USD/ CNY mid-point today at 7.1368 (vs. estimate at 7.1664)
- ICYMI - Binance Japan launches crypto services with with 34 tokens/virtual currencies
- ICYMI - OPEC’s crude production fell by the most in three years (via a Bloomberg survey)
- BOJ June meeting minutes - members agreed must maintain current easy monetary policy
- Australian Industry index, manufacturing PMI, construction PMI - all into deep contraction
- New Zealand unemployment rate 3.6% (vs. expected 3.5%)
- Former US President Trump has been charged with multiple election-related crimes
- Forexlive Americas FX news wrap 1 Aug:The USD moves higher. 30 yr yield highest since Nov.
- Private oil survey data shows huge headline crude draw, MUCH larger than expected
- Trade ideas thread - Wednesday, 2 August 2023
The big news of the session hit just after 5pm New York time, Fitch (the rating agency) downgraded US long-term debt (i.e. US government, sovereign, bonds) to AA+ from AAA. As an aside, Fitch warned on this back in May, citing the debt ceiling debacle and US governance difficulties.
The market response was slow. US equity index futures were down a touch on the news before they closed. Upon reopening they gapped lower, but not by a huge margin (pun intended). As I update ES and NQ futures, while off their lows of the Globex session so far, have not filled in the gap. FX markets were, of course, trading, but only New Zealand and Australia were active, Australia only just. It was too early for Tokyo (it was before 7am), Singapore and Hong Kong (before 6am) FX markets, and thus the lowest liquidity time of the 24-hour forex cycle. The USD strengthened. EUR/USD traded to circa 1.1020, USD/JPY dropped briefly to around 142.75. Both have since fully retraced.
The New Zealand dollar has been an under-performer. The NZ Q2 employment report showed unemployment coming in higher than in Q1 and above the consensus expected.
In central bank news we had the Bank of Japan June meeting minutes. And also a speech from Deputy Governor Uchida in which he went to great lengths to explain last week’s move on YCC was aimed at making the Bank’s YCC more flexible and at maintaining easy policy, not something with an eye on exit from easy policy.
In oil news the privately surveyed inventory report said the latest weekly headline draw was in excess of 15mn barrels, well ahead of the circa 1.4mn draw that was the consensus expected. The weekly draw was the largest for this survey for at least 4 decades. We await confirmation from the official survey from the US Energy Information Administration (EIA) due Wednesday morning US time.
Asian equity markets:
Japan’s Nikkei 225 -1.8%
China’s Shanghai Composite -0.8%
Hong Kong’s Hang Seng -2%
South Korea’s KOSPI -1.4%
Australia’s S&P/ASX 200 -1%
(This chart is from our charting app, which is free and can be found at this link)
