1. Fitch downgrades U.S. credit rating
Fitch has lowered its rating of U.S. debt to AA+ from the top tier level of AAA, citing concerns over a rising debt burden and eroding confidence in Washington’s leadership, only months after lawmakers brought the world’s largest economy to the brink of a sovereign default.
The downgrade, which is the first by a major ratings agency in over a decade, points to fears that repeated political standoffs over the debt limit could threaten the stability of the $25 trillion global Treasury market. Treasuries have typically been seen as a safe-haven asset backed by trust that America will pay back its obligations, and this faith has helped to underpin U.S. debt as a benchmark for stocks and other bonds.
While Fitch’s move is not expected to immediately alter this role, it does raise some questions around America’s reputation for reliability. In a statement on Tuesday, the ratings firm argued that there has been “a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters.”
Fitch also predicted that the general government deficit will climb to 6.3% of gross domestic product in 2023, up from 3.7% in 2022, “reflecting weaker federal revenues, new spending initiatives and a higher interest burden.”
The announcement was met with some derision, with economist Lawrence Summers calling it “bizarre and inept” in light of recent signs of U.S. economic resilience and Treasury Secretary Janet Yellen saying it was “arbitrary and based on outdated data.”
2. Futures lower after Fitch announcement
U.S. stock futures moved lower on Wednesday, while the dollar slipped and Treasury futures rose, as investors attempted to gauge the impact of Fitch’s decision.
By 05:18 ET (09:18 GMT), the Dow futures contract had dropped by 232 points or 0.64%, S&P futures lost 39 points or 0.84%, and Nasdaq 100 futures shed 182 points or 1.15%.
The dollar index, which tracks the greenback against a basket of other currencies, fell by 0.16% to 102.14, but remained relatively close to three-month highs. Yields on U.S. Treasuries, meanwhile, declined. Prices for these bonds typically increase when yields fall.
Investors had a relatively muted reaction to the downgrade, with some analysts saying they expect the fallout to be limited. However, they flagged that it still injects added uncertainty into markets at a time when the immediate path ahead for the world economy is murky.
3. AMD and Starbucks
Along with the Fitch downgrade, markets were pouring over the latest quarterly earnings from chipmaker Advanced Micro Devices (NASDAQ:AMD) and coffeehouse chain Starbucks (NASDAQ:SBUX).
AMD forecast that the release of its artificial intelligence chips will drive up its annual results, sending shares higher in premarket trading.
The semiconductor group plans to launch its MI300 AI chips later this year. The technology is expected to compete directly with rival Nvidia (NASDAQ:NVDA) in the increasingly lucrative market for AI-powering chips. Chief Executive Officer Lisa Su noted that customer interest in the MI300 series of chips is “very high.”
Starbucks, meanwhile, reported global comparable sales that missed estimates, as demand for the Frappuccino maker’s drinks and food showed signs of slowing in North America. Quarterly transactions in the region rose by just 1%, down from a 6% uptick in the prior three-month period.
But Starbucks still topped profit estimates thanks in large part to a sharp recovery in sales in China, which analysts said helped mitigate a premarket slide in the company’s shares.
4. Qualcomm highlights earnings day
This week’s wave of quarterly corporate earnings gathers pace Wednesday, with chipmaker Qualcomm (NASDAQ:QCOM) set to headline the slate of companies reporting.
The San Diego-based group, which makes chips that help power a wide range of smartphones, is expected to deliver fiscal third-quarter adjusted earnings per share (EPS) of $1.81 on adjusted revenue of $8.51 billion, according to Bloomberg consensus estimates. In the corresponding period last year, the company posted an EPS of $2.96 and revenues of $10.93B.
Analysts at JPMorgan said earlier this week that Qualcomm could beat relatively low estimates, citing recent returns from its rivals that suggest “improved trends” in the sluggish smartphone market.
Demand for handset devices has faced headwinds as inflation-hit consumers rein in spending on non-essential items, replacement cycles elongate, and smartphone makers struggle to come up with new advances to entice customers. In the first quarter, global smartphone shipments slipped by 13%, according to research firm Canalys.
Elsewhere, other firms posting results include pharmacy chain CVS (NYSE:CVS), fintech group PayPal (NASDAQ:PYPL), and fast food corporation Yum! Brands (NYSE:YUM).
5. Crude prices climb after U.S. inventories draw
Oil prices rose Wednesday, nearing their highest levels since April, after industry data pointed to a hefty fall in U.S. inventories, indicating robust demand from the world’s biggest fuel consumer.
Data from the American Petroleum Institute on Tuesday showed that U.S. crude inventories shrank by 15.4 million barrels in the week to July 28, the largest draw seen in data stretching back to 1982. Official data from the Energy Information Administration are due later in the session for confirmation.
Outside of the U.S., Saudi Arabia is expected to announce that it will extend its voluntary output cuts into September at an OPEC+ meeting on Friday, Reuters has reported.
By 05:19 ET, the U.S. crude contract traded 0.98% higher at $82.17 a barrel, while the Brent contract climbed 0.86% to $85.64.
Source: Economy - investing.com
