2-8-2023 (HONG KONG) Asian stocks declined while US Treasury yields fell on Wednesday after ratings agency Fitch downgraded the United States’ top-tier sovereign credit rating. MSCI’s broadest index of Asia-Pacific shares fell 0.5%, with Japan’s Nikkei sliding by 1.2% and Australian shares edging down 0.5%. China’s mainland benchmark and Hong Kong’s fell by 0.3% and 0.5%, respectively. The US stock futures, the S&P 500 e-minis, pointed 0.2% lower on Wednesday, weighed down by declines on Wall Street overnight.
Fitch cut the United States by one notch to AA+ from AAA, citing fiscal deterioration, a decision announced after the Wall Street close on Tuesday. US 10-year Treasury yields declined by about 2 basis points to 4.025% in Tokyo. “Most of the Asia turmoil this morning and the Treasury yields move is triggered by the Fitch decision,” said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas.
In response to the downgrade, investors fled to the relatively safer sovereign debt from riskier equity markets. The US dollar moved lower against a basket of major currencies immediately after the announcement but was up 0.1% as of the Asian morning. While the investor reaction to the downgrade was relatively contained, it has injected some uncertainty into financial markets.
Looking beyond the Fitch downgrade, the main area of focus will still be central banks, corporate earnings, and in China specifically, stimulus prospects and geopolitical issues. The United States publishes fresh data on jobless claims and unemployment later this week. Oil prices gained on Wednesday, trading near their highest since April, after industry data showed a much steeper-than-expected draw last week in US crude oil inventories. Gold was slightly higher, trading at $1,949.69 per ounce.
