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Opening Call:
European stock futures point to declines early Wednesday. In Asia, stock benchmarks fell; the dollar weakened slightly; Treasury yields were steady; while oil and gold futures rose.
Equities:
European shares look poised to extend declines at Wednesday's open, as Fitch Ratings' downgrade of the U.S. sovereign rating after markets closed in New York weighed on sentiment.
Fitch 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.
Traders are also looking ahead to the BOE decision and U.S. jobs data later this week, as well as more big tech earnings reports.
U.S. Labor Department data Tuesday showed job openings dropping slightly in June. The number of quitting workers nudged lower to 3.8 million, down from 4 million. The numbers indicate a still-tight job market.
"Economic data came in slightly softer than expected, though not enough to threaten the soft landing expectations," noted Louis Navellier, chairman and founder of Navellier & Associates.
Tuesday's JOLTS report showed a jobs market that's "still simmering" even if it's no longer boiling hot, said Nick Bunker, Indeed Hiring Lab's head of economic research.
"The pace of the current slowdown may be too gradual for many policymakers at the Federal Reserve, as job openings are only gradually declining. But workers have much to celebrate and still possess substantial leverage," he said. "If layoffs continue to remain low, this tenacious and tight labor market can endure."
On Wednesday, there's the ADP private sector jobs report for July, then the weekly unemployment benefit claims on Thursday, and finally the July jobs report on Friday.
Stock markets have started August in a cautious mood. It's not a surprise for investors to start the new month with a pause and profit-taking, said Art Hogan, chief market strategist at B. Riley Wealth Management.
In this context, "the dynamic is either wait-and-see or a pullback" while the real market catalysts are coming later this week, Hogan said. "It's easy to remain laser-focused on what's important."
Steve Sosnick, chief strategist at Interactive Brokers, said earnings reports by Amazon and Apple and the U.S. job numbers are the big sparks ahead for traders.
The numbers could paint a mixed picture and cancel out wider stock market effects, but if the Amazon and Apple numbers and jobs data "move in one direction with one another, up or down, you have a bit of a slingshot," he said.
Read: The stock market's lofty valuation right now should make you dizzy
Forex:
The U.S. dollar edged lower early Wednesday. The dollar could rise further on growing evidence that the U.S. economy is faring better than others, offsetting signs that interest rates in the country are at or near their peak, JPMorgan said.
The U.S. currency should progress as markets reflect on disinflationary processes, as well as questions surrounding growth in other economies going forward.
Recent purchasing managers' surveys revealed divergence between the U.S. and eurozone economies, while markets are pricing in fewer U.S. rate cuts and fewer eurozone rate increases. JPM also points to a still-accommodative Bank of Japan and softer-than-expected U.K. inflation.
Bonds:
Treasury yields were steady in Asia after Fitch's U.S. credit rating cut.
If demand for Treasurys rises following Fitch's downgrade of the country's credit rating to AA-, it would be a case of history repeating. In 2012, one year after S&P downgraded the U.S. to AA+, The Wall Street Journal reported demand for Treasurys had grown since the downgrade. At the time, the demand for safe-haven assets was exacerbated by the eurozone debt crisis.
Fitch's warning that its downgrade of the U.S. reflects expected fiscal deterioration over the next three years could be a spur to hasten the move into haven assets, including Treasurys.
Energy:
Oil futures rose early Wednesday amid supply tightness and easing macroeconomic pressures as the Fed edges toward the end of its rate-hike cycle.
Meanwhile, BP has said oil demand is set to rise, "with CEO Bernard Looney saying that despite concerns of the global economy, demand for oil has been incredibly resilient," ANZ said. Looney expects strong demand to continue into 2024, ANZ added.
ANZ also pointed to supply tightness in the market as recent production cuts are implemented.
Metals:
Gold futures were little changed in Asia after settling lower overnight. Gold has declined with a stronger USD weighing on investor demand, ANZ said. This was despite investors trimming their bets for a 25bp rate hike by the Fed in September, ANZ added.
"The U.S. dollar is pushing higher again this week which is weighing heavily on gold prices currently," said Manoj Ladwa, director at ARJ Capital.
"Despite the market no longer pricing in any further Fed rate hikes this year, the drive seems to be linked to the resilience of the U.S. economy, as shown through recent data strength," Ladwa said.
Alex Kuptsikevich, senior market analyst at FxPro, said the fundamentals on the precious metal's side include investor sentiment that the Fed is done raising interest rates after a string of weak inflation data in recent weeks.
"The ability of the bulls to defend the $1,947 level for the third time in less than a month could encourage them to buy, taking the price to the area of the historic highs at $2,050 and renewing them from there," Kuptsikevich said. "This is the base case scenario."
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Chinese iron-ore futures declined amid high arrival volumes, with global shipment volumes led by stronger growth in Australia.
However, the average daily output is still lower on month given restrictions imposed on the Chinese steelmaking hub of Tangshan, Nanhua Futures said.
The upward momentum for short-term iron ore prices has also weakened, as some steel mills are reselling their own drifting iron-ore cargo, Nanhua added.
TODAY'S TOP HEADLINES
$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.
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.
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.
Tensions Between Russian, Western Allies Grow Over Niger Coup
European governments began evacuating their citizens from Niger on Tuesday after last week's coup in the West African country triggered a tense standoff between Moscow's allies in the region and states that have worked more closely with the U.S. and other Western powers.
The evacuations-led by France, Niger's former colonial power-show that European governments expect their citizens to be at higher risk in the country, which has been central to U.S. efforts to combat Islamist militants in the Sahel, the semiarid strip south of the Sahara.
Meta Platforms Begins Blocking News for Canadian Users
OTTAWA-After months of warnings, Meta Platforms said Tuesday that it has started to block access to news links for Facebook and Instagram users in Canada, raising the stakes in a showdown over whether digital companies should finance news outlets.
"Changes will roll out over a few weeks," Meta spokesman Andy Stone said on his official account on X, the platform formerly known as Twitter. "As we've always said, the law is based on a fundamentally flawed premise. And, regrettably, the only way we can reasonably comply is to end news availability in Canada."
AMD Reports Solid Earnings and 'Strong Progress' on AI Chips. The Stock Is Rising.
Advanced Micro Devices stock rose in late trading Tuesday after the chip maker reported earnings that were slightly above expectations.
But investors were likely more excited about the latest update on the company's artificial intelligence portfolio and predictions about the AI market.
Write to singaporeeditors@dowjones.com
Expected Major Events for Wednesday
06:00/ROM: Jun PPI
07:00/SPN: Jul Unemployment
07:00/SWI: Jul Quarterly Consumer Sentiment Index
(MORE TO FOLLOW) Dow Jones Newswires
08-02-23 0016ET
