2023-08-02 20:59:00
The US stock market fell on the 2nd. Ratings agency Fitch Ratings announced after the close of the previous day that the downgrade of US Treasuries had a wider impact, as well as strong employment data and an increase in the issuance of medium- to long-term bonds by the US Treasury Department.
S&P 500 Stock Index 4513.39-63.34-1.38% Dow Jones Industrial Average 35282.52-348.16-0.98% Nasdaq Composite Index 13973.45-310.46-2.17%
With the overall decline, the S&P 500 stock index has fallen sharply since April. The Nasdaq 100 index fell about 2%. Nvidia fell 4.8% and Tesla fell 2.7%. The Chicago Board Options Exchange’s (CBOE) Volatility Index (VIX), known as the Fear Index, posted its biggest gain in almost five months.
Dan Wontrowski, research director at Janney Montgomery Scott, said the stock market was “consolidating at a high level” after a rally that was partly overbought and heavily bullish. . Consolidation is usually seen as a healthy process for a previous trend resumption, but “our outlook for the second half of the year is not significantly different at this point,” he said, adding that “we still expect a fairly significant correction. there is,” he said.
Right now, another cause for concern is the steepening of the yield curve.
Over the past 50 years, the stock market has tended to drop sharply when the yield curve steepens from an inverted yield curve, according to Matt Maley, chief market strategist at Miller Tabak.
“Given this, we are not concerned about the impact of a downgrade,” he said. said.
Fitch cited soaring budget deficits and “deteriorating governance” as reasons for the downgrade. In a market already worried about recession risks and the sustainability of this year’s rally in stocks, the downgrade added to the fear.
Ed Moya, senior market analyst at Oanda, said the U.S. downgrade shouldn’t have come as a surprise to investors who had been listening to Fitch’s comments, but the timing caught everyone by surprise. point out that
“Equity traders are taking advantage of the surge in yields and the fear of Apple and Amazon.com Inc.’s upcoming earnings releases as an opportunity to take profits,” he said. there is,” he said.
government bond
U.S. Treasuries fell for most maturities. A large supply of government bonds and renewed strength in the job market fueled the sell-off.
JGB latest price vs. previous business day (bp) rate of change US 30-year bond yield 4.18% 8.52.07% US 10-year bond yield 4.08% 5.91.46% US 2-year bond yield 4.88%-2.3-0.47% US Eastern Time 16 55 minutes past the hour
The 10-year bond yield briefly rose 10 basis points to 4.12%, its highest level since November 2022. Yields on 30-year bonds also reached 4.2%, the highest level in nearly nine months.
For the first time in about two and a half years, the U.S. Treasury Department has raised the size of medium- to long-term bond issuances for its quarterly auctions. It will issue 3-, 10- and 30-year bonds worth a total of $103 billion (about ¥14.74 trillion) at auction next week. The size of the issuance, which totaled $96 billion, was up from last year and slightly above most dealer expectations. Demand is likely to be tested at the auction, with Fitch citing deteriorating finances as one of the reasons for the downgrade.
“The downgrade comes at a slightly odd time, but the U.S. public finances are in a worrisome state,” said Tracy Cheng, portfolio manager at Brandywine Global Investments. The downgrades coincided with auctions, which could lead to higher term premiums and a steeper yield curve, he said.
The release of July’s ADP employment data provided further upward pressure on yields. According to statistics, the number of private sector employees increased by 324,000, exceeding the market forecast of an increase of 190,000.
The yield curve has also steepened further. At 4.92%, two-year yields are 82 basis points higher than 10-year yields.
foreign exchange
In the foreign exchange market, the Bloomberg dollar spot index rose. Despite Fitch’s downgrade of US Treasuries, the dollar was bought on persistent demand as a safe haven asset. The dollar strengthens across the board against the G10 currencies. Against the US dollar, the New Zealand dollar and Australian dollar were particularly hard hit.
Bloomberg Dollar Index 1229.565.400.44%USD/JPY¥143.35¥0.010.01%EUR/USD$1.0938-$0.0046-0.42% 16:55 US Eastern Time
The dollar remained almost unchanged against the yen. At one point, it rose 0.1% to 143.47 yen.
“I don’t want to put too much emphasis on Fitch’s downgrade, but it probably gave the market an excuse to reset,” said Win Singh, currency strategist at Brown Brothers Harriman.
“There’s been flight buying in the dollar as riskier currencies have been sacrificed,” said Francesco Pesol, currency strategist at ING. “We don’t see this having a long-term impact and the market focus will soon shift to data,” he said.
crude
New York crude oil continues to fall. It became clear that rice inventories decreased by the largest width in history, but it did not lead to pushing up the market. Market concerns over the macroeconomic outlook have put the brakes on the recent rally.
West Texas Intermediate (WTI) futures closed below $80 a barrel. Energy Department data showing sharp declines in inventories have all but been largely ignored by the market, traders say. U.S. crude oil inventories fell by 17.05 million barrels last week, affected by large swings in adjustment factors. As a result, the legitimacy of the statistics itself has become questionable, and crude oil prices have fallen in line with stock prices.
“There’s no denying the scale of the destocking is huge, but there’s usually some loss of seasonal momentum going forward,” said Rebecca Babin, senior energy trader at CIBC Private Wealth. . “Macro-risk trading has started to pick up steam again. Investors should use today’s inventory data to avoid buying, but to sell as they prepare for the expected slowdown in growth in the coming months,” she said. We are doing it,” he said.
Upper row: WTI futures, Lower row: Relative Strength Index
Source: Bloomberg
Poor global demand is also adding to the bearish view on oil. The four-week moving average of US gasoline demand fell for the fourth straight week despite the peak summer driving season. Demand in China, the world’s largest importer of crude oil, has hit a ceiling, with analysts widely believing large volumes of crude are being stored instead of being refined into gasoline or diesel.
WTI futures for September delivery on the New York Mercantile Exchange (NYMEX) closed at $79.49 a barrel, down $1.88 (2.3%) from the previous day. London ICE North Sea Brent for October contract fell $1.71 to $83.20.
Money
The New York gold market continues to fall. Rising US Treasury yields had an impact. It was a deal to absorb a downgrade in the U.S. credit rating and stronger-than-expected private-sector employment numbers.
Fitch’s downgrade has provoked a backlash from both Washington and Wall Street, even though a ballooning deficit poses risks that could eventually destabilize markets, the economy and next year’s presidential election. Still, Treasury yields and the dollar have risen, weighing on non-interest-bearing gold investments.
“Last night’s Fitch downgrade and the expectation that Treasury auctions will continue to grow have delivered a one-two punch to gold,” said Ed Moya, senior market analyst at Oanda. “Yields are rising and the pressure on gold continues,” he said.
Gold has been consolidating near $1,950 an ounce for several weeks, and the market is waiting for more clarity on monetary policy.
Gold spot price (right scale), US 10-year bond yield (left scale)
Source: Bloomberg
Recent data has been mixed about the job market. If rate hikes continue, gold could erase its gains so far.
ADP Private Employment Increases to 324,000 in July, Exceeding All Economists’ Expectations (2)
U.S. job openings drop in June, lowest since 2021; layoffs curbed
“The market is split between the bulls and the bears,” said Lorna O’Connell, head of market analysis at StoneX Group. She said there was “enough support” for gold to rise to higher ranges over the long term, pointing to possible dollar weakness and heightened economic uncertainty ahead.
December futures on the New York Mercantile Exchange (COMEX) closed at $1,975.00 an ounce, down $3.80 (0.2%) from the previous day. As of 2:27 pm New York time, the spot price was down 0.4% to $1,936.38.
Original title:S&P 500 Has Worst Day Since April After Big Rally: Markets Wrap
Treasury Yields Hit 2023 Highs on Strong Job Market, Debt Deluge
Dollar Advances After Fitch Ratings Downgrade Dip: Inside G-10
Record Crude Inventory Drop Fails to Shake Oil’s Macro Gloom
Gold Slips as Bond Yields Push Higher on Fitch’s US Downgrade （抜粋）
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