After the close last night, Fitch Ratings cut its long-term default rating on US government debt to AA+ from AAA, following up on a warning it had issued back in May. The agency blamed deteriorating standards of fiscal governance and the brinksmanship around the debt ceiling for the downgrade.
This news sent shockwaves through world markets. Stocks sold off with the Nikkei losing 2.3%, the Hang Seng losing 2.5%, and Sydney falling 1.3% in Asia Pacific trading. Since European markets opened, stocks have been trying to claw back some of their overnight losses, but this morning still finds the FTSE down 1.0%, the Dax down 0.7%, and US index futures down 0.25% to 0.75%, with the NASDAQ leading the way downward.
The US 10-year treasury note yield has climbed back up to 4.00% on this news. The US Dollar has been under pressure again overnight, falling 0.5% against Gold, 0.8% against Bitcoin, but has managed to hold its ground relative to the Euro, Pound and Loonie.
US ADP payrolls crushed expectations for the second month in a row, (324K vs street 189K) offsetting yesterday’s soft US Construction Spending and US Manufacturing PMI numbers.
Earnings reports issued overnight and this morning have come in ahead of expectations. Headliners include Thomson Reuters* ($1.11 vs street $1.00), AMD ($0.58 vs street $0.57), Starbucks ($1.00 vs street $0.95), and CVS Health ($2.21 vs street $2.12). After the close today, results are due from Shopify*, Nutrien, Qualcomm and Paypal.
*Shares of Thomson Reuters and Shopify are held in some portfolios managed by SIA Wealth Management.
– By Colin Cieszynski, CFA, CMT, Chief Market Strategist, SIA Wealth Management