The fact that Fitch agency lowered the US debt rating from AAA to AA+ has markets wondering if this could affect corporate financing in the long run. Although this is the case, data from the US economy continues to be strong.
US and EU stocks continue on their bearish path
During yesterday's session, US and European stocks kept moving down.
This was a significant sale brought on by the Fitch agency's unexpected rating reduction of the US.
A probable deterioration in US credit has caused US Treasury bonds to respond negatively, with rates on the 10-year bond reaching their highest levels since November of last year. Some prestigious investors, like fund manager Bill Ackmann, have disclosed short positions in US government bonds because they anticipate that the current downward trend in these securities would continue. Ackmann's scenario assumes that inflation won't fall below 3% and that the North American government will have significant financing needs, leading to an increase in the supply of public debt. All of this is true regardless of whether the Federal Reserve keeps raising interest rates.
North American economic data continues to be strong
The ISM non-manufacturing Purchasing Mangers’ Index (PMI) for the month of July was published yesterday with a reading of 52.7, which still exceeds the growth threshold despite the enormous tightening of monetary policy. As a result, it is unlikely that monetary policy will change in the short or medium term given the continued strength of the North American economic data.
Corporate reports are exceeding expectations
The stock market exhibits a significant degree of susceptibility in light of this scenario of market interest rates strongly rebounding and the uncertainty about the future of North American credit that could influence business financing in the long run. Even more so when the disclosed corporate profits show a declining trend compared to prior quarters, even though they frequently exceed projections.
The US Dollar remains strong while gold feels pressure
According to technical analysis, the S&P500 index has dropped for three straight days and is now very close to a key support level that is positioned around 4499, below which it would allow for more declines.
The rise in interest rates, which is what is driving the US Dollar's strength despite yesterday's lack of notable movement, puts downward pressure on gold, which has a key support zone at $1913.
USA500 monthly trading chart August 4, 2023. Sources: Bloomberg, Reuters
Key Takeaways
- US and EU stock were greatly sold yesterday
- US Treasury bonds react to potential worsening of US credit
- Investors expect US treasury bonds to continue to go down
- The US ISM non-manufacturing PMI for July showed a figure of 52.7
- With US economic data showing numbers above the growth threshold, a change in monetary policy in the short term in unlikely
- The stock market was vulnerable due to uncertainty
- Corporate profits are coming out above expectations
- S&P500 has fallen for three days in a row
- The US Dollar remained strong while Gold felt pressure
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