MARKET WRAPS
Stocks:
European stocks tumbled on Wednesday in reaction to Fitch's downgrade of the U.S. government's credit rating.
Investors were already cautious over concerns that recent data has revealed the economy is weaker than previously thought, heightening fears for earnings growth heading into the second half of the year.
Read Downgrade By Fitch Not A Worry for International Investors, Jefferies Says
Economic Insight
Tourist arrivals in Spain continued to climb in June, though they still lag the period before the global pandemic, official government figures show.
Arrivals to Spain, the world's second most visited country, rose 11% compared with June last year, reaching 8.3 million but remaining some 5.8% lower than in June 2019.
Total spending by tourists rose in the first six months of the year to EUR46 billion, some 14% higher than in the first six months of 2019. In June, tourists spent EUR11 billion, around 18% more than in June 2022 and 9.5% more than in June 2019.
U.S. Markets:
Stock futures fell sharply on the Fitch move.
Meantime, another bevy of earnings are due early Wednesday, including from CVS Health, Humana and DuPont, Kraft Heinz and Yum! Brands.
Profits have come under pressure this year. Companies in the S&P 500 are set to log a third quarter of declining profits, according to FactSet data. Analysts have cut earnings expectations for the latter half of 2023.
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Forex:
The dollar edged lower on the Fitch downgrade and MUFG said the move highlights issues with U.S. public finances, which it sees as a negative structural factor for dollar performance over the medium to long-term.
Bonds:
The 10-year German Bund yield has been struggling for direction within a narrow range between 2.20% and 2.60%, MUFG said.
Investors' scaling back of European Central Bank interest-rate expectations have helped to keep the Bund yield within that range, it added, pulling its forecast for a September rate rise.
"The main risk to that view would [be] if core inflation and/or wage data in the coming months encourages one final hike," MUFG said.
Retail demand for gilts has likely reached its peak, RBC Capital Markets said.
Using google search trends to track gilt demand, RBC found the popularity of the search term "buy gilts" started to rise sharply from mid-June and reached the peak in early July and has since declined from this high level.
"The search trend suggests that retail demand for gilts has now likely normalised," RBC said.
The Bank of England could pause or skip rate rises in coming months, a move likely to cause short-dated gilt yields to fall, RBC added.
"Under these conditions, we believe that the peak in retail purchases of gilts is now firmly behind us."
Energy:
Oil prices rose after U.S. inventories slumped by 15.4 million barrels, according to sources citing the API, which if confirmed by official Energy Department data would be the largest drawdown since at least 1982.
Analysts had been forecasting a 1.3 million barrel increase in stocks.
Metals:
Base metals were lower on weak China data, particularly on falling home sales, Commodity Research Group said. This has added to the U.S.'s debt rating downgrade from Fitch to create a dour mood for industrial metals.
Meanwhile, ANZ said gold prices are likely to remain rangebound in the near-term with the prospect of another rate hike in September from the Federal Reserve.
DOW JONES NEWSPLUS
EMEA HEADLINES
BAE Systems Raises Guidance After Pretax Profit Grew on Strong Orders; Launches $1.9 Bln Buyback
BAE Systems raised its full-year forecast after reporting a rise in first-half pretax profit reflecting record order books as governments spend more on defense.
The U.K. defense-and-aerospace group raised its sales guidance by 200 basis points to 5% to 7%, from previous guidance of 3% to 5%. Underlying earnings before interest and taxes are now seen rising by between 6% and 8%, up from a range 4% to 6%. Underlying earnings per share guidance went up 500 bps to 10% to 12%, from a prior 5% to 7%.
Haleon Raises Guidance After Revenue Grew Ahead of Expectations
Haleon on Wednesday raised its full-year guidance as it reported a better-than-expected 10.4% organic revenue growth for the first half of 2023 on pricing and positive volume mix.
The consumer-healthcare business-which was spun out of GSK and is partly owned by Pfizer-reported revenue for the six months ended June 30 of 5.74 billion pounds ($7.33 billion), up from GBP5.19 billion a year prior. This was ahead of estimates taken from a company-compiled consensus which had the figure at GBP5.69 billion, and had seen organic growth of 8.2% for the half-year.
Siemens Healthineers Net Profit Rose on Lower Taxes
Siemens Healthineers's net profit for its fiscal third quarter rose mainly thanks to lower taxes.
The German medical-equipment maker said Wednesday that net profit for the quarter ended June 30 was 445 million euros ($488.8 million) compared with EUR363 million in the same period last year.
Fresenius Earnings Falls on Rising Costs
Fresenius posted declining earnings for the second quarter, which it attributed to rising costs, higher taxes and negative developments at its hospital subsidiary.
The German health-care company on Wednesday posted net income before special items of 375 million euros ($411.9 million) for the second quarter, down from EUR450 million the previous year, while operating income declined to EUR543 million from EUR845 million.
Hugo Boss Raises Guidance on Higher Earnings, Sales
Hugo Boss increased its guidance for 2023 after reporting higher earnings and sales in the second quarter.
The German fashion company on Wednesday reported net income of 75 million euros ($82.4 million) for the second quarter, up from EUR58 million the year prior, on sales which climbed to EUR1.03 billion from EUR878 million in the same quarter the previous year.
Smurfit Kappa's Profit Falls as Volumes Slip, But Has Confidence in Future
Smurfit Kappa Group said first-half pretax profit fell together with revenue as volumes declined, though it had market-share gains across many countries and is confident in future prospects.
The paper-based packaging company said Wednesday that pretax profit for the six months ended June 30 was 659 million euros ($723.8 million) compared with EUR769 million for the first half of 2022.
GLOBAL NEWS
Fitch Downgrades U.S. Credit Rating
Fitch Ratings downgraded the U.S. government's credit rating weeks after President Biden and congressional Republicans came to the brink of a historic default, warning about the growing debt burden and political dysfunction in Washington.
The downgrade, the first by a major ratings firm in more than a decade, is evidence that increasingly frequent political skirmishes over the U.S. government's finances are clouding the outlook for the $25 trillion global market for Treasurys. Fitch's rating on the U.S. now stands at "AA+", or one notch below the top "AAA" grade.
$25 trillion Treasury market is in the spotlight as U.S. loses its AAA rating for a second time
Will August 2023 be a repeat of August 2011?
Fitch Ratings on Tuesday became the second major credit firm to cut the U.S. government's top AAA rates to AA+, a move that was swiftly condemned by the White House and the Treasury Department.
Oil Prices Perk Up as Recession Worries Ebb and Supply Tightens
Oil prices have surged to the highest levels in three months, as the economic outlook improves and supply cuts from some of the world's biggest producers start to bite.
Some analysts believe benchmark crude-oil futures are due for further gains, and could head toward $100 a barrel, after trading within a few dollars either side of $80 a barrel so far this year.
China Extends Tax Relief Measures to Support Small Businesses
China's finance ministry on Wednesday unveiled measures to help the nation's struggling small businesses as the economy's post-Covid-19 recovery loses steam.
The ministry said the tax measures implemented in January, which were supposed to expire at the end of the year, would be extended by four years to end-2027. These measures exempted small businesses with less than 100,000 yuan ($13,923) in monthly sales from paying value-added taxes, while small businesses which were supposed to pay a 3% value-added tax had the rate lowered to 1%.
BOJ to Continue Easing Until Sustainable Inflation Is Achieved, Deputy Gov Says
Bank of Japan Deputy Gov. Shinichi Uchida said Wednesday that the central bank would maintain an easy policy stance despite its recent decision to make its yield curve control more flexible.
"The bank's decision to conduct yield curve control with greater flexibility aims at patiently continuing with monetary easing," Uchida said in a speech. "We do not have an exit from monetary easing in mind."
Atlanta Fed's Bostic doesn't think a September rate hike is needed
The president of the Atlanta Federal Reserve said a "significant" slowdown in inflation gives the central bank scope to leave interest rates unchanged in September and keep the Fed on hold until next year.
Raphael Bostic on Tuesday said there's a growing risk the Fed could overdo it by continuing to raise rates, potentially damaging the economy unnecessarily. He made his remarks in a Zoom roundtable with reporters.
Trump Is Indicted in Federal Probe of His Efforts to Reverse 2020 Election
WASHINGTON-Donald Trump was indicted Tuesday in an unprecedented criminal case accusing the former president of trying to subvert the will of American voters through his attempts to cling to power after he lost the 2020 election.
(MORE TO FOLLOW) Dow Jones Newswires
08-02-23 0536ET
