3-8-2023 (SYDNEY) – Asian shares remained subdued on Thursday as Fitch’s downgrade of U.S. sovereign debt prompted profit-taking. Investors are now shifting their focus to the Bank of England’s rate decision and upcoming earnings reports from tech giants Apple and Amazon.
Both S&P 500 futures and Nasdaq futures showed a modest gain of 0.2 per cent, recovering slightly after a significant sell-off on Wall Street the previous day.
In the Asian market, MSCI’s broadest index of Asia-Pacific shares outside Japan declined by 0.2 per cent, following a massive drop of 2.3 per cent just a day earlier. This comes after a solid 5.4 per cent monthly gain in July.
Japan’s Nikkei also faced a 1.1 per cent fall, erasing some of the 7.5 per cent surge seen in the previous month, resulting in a 2.5 per cent loss for August so far.
The yield on 10-year Japanese government bonds (JGB) rose to 0.65 per cent on Thursday, reaching its highest level since April 2014. This came after the Bank of Japan loosened its grip on yield curve control last week.
Chinese blue-chip stocks experienced a slight 0.2 per cent increase, while Hong Kong’s Hang Seng index remained mostly flat. A private survey indicated that China’s services activity expanded at a faster pace in July.
Market analyst Matt Simpson from City Index in Brisbane commented on the situation, saying, “I reckon that even though you could argue that the Fitch downgrade is outdated… I think you’ve seen enough movements for some things to be burned and some questions to be asked at these highs. I reckon at best you probably could look at some choppy trade around these highs or at worst we can have a bit of a deeper pullback.”
Overnight, Nasdaq and S&P 500 experienced their most significant declines since February and April, respectively. This follows a strong performance in July, driven by better-than-expected earnings and optimism about the U.S. economy.
Later in the day, Apple is expected to report a substantial drop in third-quarter revenues, the largest since 2016, due to slowing iPhone sales. Meanwhile, Amazon.com Inc, seen as a bellwether for consumer spending, is projected to report over an 8 per cent rise in second-quarter revenue, benefiting from a recovery in the advertising and e-commerce sectors.
Market sentiment has been influenced by higher long-term U.S. yields, driven by stronger-than-expected private employment data and the announced refunding of the U.S. government’s maturing debt.
U.S. 10-year yields hovered around 4.0856 per cent in Asia, slightly below the nine-month peak of 4.1260 per cent reached overnight. 30-year yields were up by 2 basis points at 4.1847 per cent, approaching the highest level since November.
The U.S. dollar remained strong in Asia, reaching a one-month high of 102.63 against major peers. This came after robust private payrolls data indicated labor market resilience in the U.S. The highly anticipated U.S. nonfarm payrolls report is scheduled for release on Friday.
The risk-sensitive Australian dollar broke a key support level, hovering at $0.6532, just above its 2023 low of $0.6459.
The Bank of England is expected to raise interest rates later in the day. Most economists predict a quarter-point hike to a 15-year high of 5.25 per cent, but there is a risk of a repeat of June’s surprise half-point increase, which could fuel speculation that major central banks are not yet done tightening their policies.
Meanwhile, Brazil’s central bank cut its benchmark interest rates for the first time in three years, with a larger-than-expected 50 basis points reduction. This marks the beginning of an easing cycle in emerging markets, now that U.S. rates have likely peaked.
In the oil market, prices saw a marginal increase as traders assessed bullish U.S. inventory data and the potential extension of OPEC+ output cuts. Brent crude futures rose by 0.2 per cent to $83.33 per barrel, and U.S. West Texas Intermediate crude futures gained 0.1 per cent, reaching $79.6.
Gold prices edged up by 0.1 per cent to $1,936.19 per ounce.
