Fitch Downgrade Likely To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to add to the modest losses posted in the previous session.

The downward momentum on Wall Street comes after credit rating agency Fitch Ratings unexpectedly downgraded the United States’ credit rating.

Fitch downgraded the U.S.’ long-term foreign-currency issuer default rating to AA+ from AAA, citing a “steady deterioration in standards of governance over the last 20 years.”

“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said.

The move drew a strong response from the U.S., with Treasury Secretary Janet Yellen calling the change “arbitrary and based on outdated data.”

The futures remained in the red following the release of a report from payroll processor ADP showing U.S. private sector employment jumped by much more than expected in the month of July.

ADP said private sector employment shot up by 324,000 jobs in July after surging by a downwardly revised 455,000 jobs in June.

Economists had expected private sector employment to increase by 189,000 jobs compared to the spike of 497,000 jobs originally reported for the previous month.

While the report points to continued strength in the U.S. labor market, the data may lead to renewed concerns about the outlook for interest rates.

Following a strong July, U.S. stocks saw modest weakness to kick off the month of August on Tuesday. The Nasdaq and S&P 500 moved to the downside, although the narrower Dow managed to finish the day in positive territory.

The Nasdaq slid 62.11 points or 0.4 percent to 14,283.91 and the S&P 500 fell 12.23 points or 0.3 percent to 4,576.73, but the Dow rose 71.15 points or 0.2 percent to 35,630.68, its best closing level in well over a year.

The modest weakness on Wall Street may partly have reflected profit taking, as some traders looked to cash in on the strong gains posted last month.

The tech-heavy Nasdaq soared by 4.1 percent for July, while the Dow and the S&P 500 jumped by 3.4 percent and 3.1 percent, respectively.

Overall trading activity remained somewhat subdued, however, as traders continued to look ahead to Friday’s closely watched monthly jobs report.

In U.S. economic news, a report released by the Institute for Supply Management showed U.S. manufacturing activity contracted for the ninth consecutive month in July.

The ISM said its manufacturing PMI crept up to 46.4 in July from 46.0 in June, but a reading below 50 continues to indicate contraction. Economists had expected the index to inch up to 46.8.

The Commerce Department also released a report showing construction spending rose by slightly less than expected in the month of June.

A separate report released by the Labor Department showed job openings edged down 9.58 million in June from 9.62 million in May.

Meanwhile, the uptick by the Dow came amid a substantial gain by Caterpillar, with the construction equipment manufacturer surging by 8.9 percent after reporting better than expected second quarter results.

Gold stocks turned in some of the market’s worst performances on the day, with a steep drop by the price of the precious metal weighing on the sector.

With gold for December delivery tumbling $30.40 to $1,978.80 an ounce, the NYSE Arca Gold Bugs Index plunged by 3.3 percent.

Airline stocks also showed a substantial move to the downside, resulting in a 2.4 percent nosedive by the NYSE Arca Airline Index. With the drop, the index fell to its lowest closing level in well over a month.

JetBlue (JBLU) led the sector lower, with the airline plummeting by 8.3 percent after reporting better than expected second quarter earnings but slashing its full-year guidance.

Steel, banking and biotechnology stocks also saw some weakness on the day, while networking and computer hardware stocks moved notably higher.

Commodity, Currency Markets

Crude oil futures are climbing $0.61 to $81.98 a barrel after falling $0.43 to $81.37 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,983.70, up $4.90 compared to the previous session’s close of $1,978.80. On Tuesday, gold plunged $30.40.

On the currency front, the U.S. dollar is trading at 143.08 yen compared to the 143.34 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0961 compared to yesterday’s $1.0984.

Asia

Asian stocks tumbled on Wednesday after various surveys showed factory activity around the world took a further turn for the worse in July.

Investors also fretted over the state of U.S. finances and its debt burden after Fitch downgraded the U.S. government’s credit rating from AAA to AA+, citing fiscal deterioration and repeated debt ceiling standoffs.

The decision sparked a fiery rebuttal from the White House, with press secretary Karine Jean-Pierre saying the move “defies reality.” Treasury Secretary Janet Yellen called the change “arbitrary and based on outdated data.”

The dollar held firm in Asian trading as focus shifted to ADP employment data for July due out later in the day.

Gold edged up on heightened risk aversion, while oil prices rose about 1 percent after industry data showed a huge drawdown in U.S. inventories.

Chinese and Hong Kong markets suffered heavy losses amid the lack of details on China’s stimulus measures.

China’s Shanghai Composite Index dropped 0.9 percent to 3,261.69, while Hong Kong’s Hang Seng Index slumped 2.5 percent to 19,517.38, dragged down by tech stocks.

Videogame developer Tencent Holdings lost 3 percent after China’s cyberspace watchdog announced new measures to prevent kids from spending too much time on phones.

Japanese shares posted their biggest single-day drop this year, with chip-related stocks pacing the decliners.

The Nikkei 225 Index plummeted 2.3 percent to 32,707.69 in its sharpest one-day drop since December 20, while the broader Topix Index settled down 1.5 percent at 2,301.76.

Advantest, Tokyo Electron and Screen Holdings fell 2-4 percent. Brokerage Nomura Holdings plunged 8.5 percent despite reporting a jump in first-quarter net profit.

Toyota Motor rallied 2.3 percent after its first-quarter net profit rose 78 percent from a year earlier.

Minutes of the Bank of Japan’s June policy meeting released earlier today showed that the board agreed on the need to keep ultra-loose policy for the time being.

Seoul stocks lost ground, with the Kospi falling 1.9 percent to 2,616.47, snapping a four-day winning streak on concerns over the U.S. economy.

Steel giant POSCO Holdings led losses to close 5.8 percent lower followed by SK Hynix, which plunged 4.5 percent.

LG Chem, Celltrion, Naver, LG Energy Solution, KakaoTalk, Samsung SDI, Hyundai Motor and Hyundai Mobis fell 2-4 percent. Kakao Bank tumbled 5.2 despite posting solid earnings.

South Korean consumer inflation cooled more than expected in July to its slowest in 25 months, official data released earlier in the day revealed.

Australian markets fell the most in nearly a month, dragged down by financials and commodity-related stocks.

The benchmark S&P/ASX 200 Index dropped 1.3 percent to 7,354.60, while the broader All Ordinaries Index closed 1.2 percent lower at 7,568.40.

Power producer AGL Energy slumped 4.8 percent after Macquarie downgraded its rating on the stock to Neutral from Outperform.

Europe

European stocks have fallen on Wednesday after Fitch downgraded the U.S. government’s credit rating from AAA to AA+, citing fiscal deterioration and repeated debt ceiling standoffs.

The rating agency said that during the last 20 years, there has been a decline in the standard of governance in America, the effect of which is visible in fiscal and debt decisions.

There was little reaction in the dollar, with the euro falling below the 1.1090 support zone to move into a short-term bearish zone against the greenback.

Investors also looked ahead to the Bank of England’s interest rate announcement on Thursday and the U.S. non-farm payrolls report due to be published on Friday for directional cues.

While the French CAC 40 Index has slid by 0.6 percent, the German DAX Index and the U.K.’s FTSE 100 Index are both down by 0.9 percent.

Miners Anglo American, Antofagasta and Glencore have shown notable moves to the downside on Chinese growth concerns.

Ferrexpo has also moved notably lower after reporting a decrease in pellet production for the first half of the year.

German automotive and industrial supplier Schaeffler Group has also fallen despite lifting its full-year margin view and backing its sales growth forecast.

Likewise, Hugo Boss has declined despite the luxury fashion brand reporting higher earnings and sales in the second quarter and raising its guidance again for 2023.

Specialty chemicals maker Symrise has also moved to the downside after reporting lower earnings for the first half of the year.

Siemens Healthineers has also plunged. The medical device maker confirmed its outlook after reporting an unexpected drop in quarterly operating profit.

Meanwhile, BAE Systems has jumped. The defense company upgraded its guidance for 2023 after reporting strong first-half figures.

Homebuilder Taylor Wimpey has also moved sharply higher after its first-half trading beat expectations.

U.S. Economic Reports

With the leisure and hospitality sector again driving growth, payroll processor ADP released a report on Wednesday showing U.S. private sector employment jumped by much more than expected in the month of July.

ADP said private sector employment shot up by 324,000 jobs in July after surging by a downwardly revised 455,000 jobs in June.

Economists had expected private sector employment to increase by 189,000 jobs compared to the spike of 497,000 jobs originally reported for the previous month.

“The economy is doing better than expected and a healthy labor market continues to support household spending,” said ADP chief economist Nela Richardson. “We continue to see a slowdown in pay growth without broad-based job loss.”

At 10:30 am ET, the Energy Information Administration is due to release its report on oil inventories in the week ended July 28th.

Crude oil inventories are expected to dip by 0.9 million barrels after edging down by 0.6 million barrels in the previous week.

Stocks In Focus

Shares of SolarEdge Technologies (SEDG) are moving sharply lower in pre-market trading after the Israeli solar energy company reported better than expected second quarter revenues but weaker than expected revenues.

Cruise operator Norwegian Cruise Line (NCLH) may also move to the downside after reporting second quarter results that beat analyst estimates but providing disappointing guidance.

On the other hand, shares of Match Group (MTCH) are likely to see initial strength after the Tinder and Match parent reported second quarter results that exceeded expectations and providing an upbeat revenue forecast for the current quarter.

Chipmaker Advanced Micro Devices (AMD) may also move to the upside after reporting second quarter results that beat analyst estimates on both the top and bottom lines.