HONG KONG, China – As Fitch downgraded the US debt rating, investors faced pressure from profit-taking and rising Treasury yields. This comes at a time when equities are considered less appealing.
While the downgrade caused a race out of riskier assets, analysts believe that there won’t be much long-term impact from the move.
However, traders are struggling to regain their momentum after experiencing strong gains in recent weeks. They are now reassessing valuations that some consider to be too high and the outlook for the US economy.
The labor market remains tight, as indicated by data from private payrolls firm ADP, which showed that companies created 324,000 new jobs last month, surpassing forecasts of 190,000.
Optimism about the Federal Reserve’s rate hike announcement in July was dampened by reports showing falling inflation and signs of economic slowdown.
READ: Fed’s last rate hike coming at July meeting, economists say
This news led to 10-year US Treasury yields reaching their highest point since November. The rise in yields was also attributed to the Treasury selling more bonds than anticipated in an auction.
The VIX “fear gauge” reached levels not seen since May.
Wall Street’s three main indexes all saw a decline, with the Nasdaq dropping over two percent due to the vulnerability of tech firms to higher rates.
READ: Wall Street ends down, investors step back after Fitch US rating cut
While some markets in Asia followed the selling trend, others experienced fluctuations throughout the morning. Tokyo saw a decrease of over one percent, while Hong Kong, Singapore, Manila, and Jakarta saw gains.
Stephen Innes of SPI Asset Management predicts uncertainty on trading floors in the coming weeks, as investors weigh their options following recent gains. He suggests that there may be either a renewed surge in risky investments or a significant decline if the data disappoints, as there is already a high level of optimism reflected in current prices.
The focus is now on the release of US payrolls figures on Friday, which will provide insight into the Fed’s next moves. Observers warn that a strong job report could increase bets on another rate hike.
Additionally, the Bank of England is expected to announce a 14th increase as Britain grapples with high inflation levels.
READ: Bank of England set to raise rates for 14th time in a row
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Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
