MARKET WRAPS
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ADP Employment Report; EIA Weekly Petroleum Status Report; earnings from Carlyle Group, CVS Health, DuPont, Humana, Kraft Heinz, PayPal, Qualcomm, Shopify
Today's Headlines/Must Reads
- Oil Prices Perk Up as Recession Worries Ebb and Supply Tightens
- Hong Kong's Property Market Is a Mess-and the Fed Is Partly to Blame
- Chinese Investors Warm to Sweetened U.S. Cash-for-Visa Program
- Materiality Definition Seen as Tough Task in New SEC Cyber Rules
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Opening Call:
Equity-index futures are succumbing to a broad risk off tone across markets after Fitch downgraded the U.S.'s credit rating from AAA to AA+, citing "expected fiscal deterioration" and an "erosion of governance."
The news found a stock market arguably vulnerable to unwelcome surprises, with the S&P 500 having already gained 19.2% this year and Nasdaq up 36.5%. The CBOE VIX Index jumped 16% to 16.2, its highest in nearly four weeks.
Traditional perceived havens saw demand, with the yen gaining 0.7%, gold nudging up to $1,950 an ounce, and benchmark German government bond yields moving lower. 10-year Treasury yields were little changed at 4.03%.
However, most analysts did not see the downgrade causing the stock market much long term damage.
"While debt downgrades seldom, if ever, have long legs, investors may pause and let the dust settle before re-entering risk markets," SPI Asset Management said.
"However, within this super market-friendly environment of stable growth and a Fed close to the end of its hiking cycle creating fertile ground for stock gains, its unlikely risk sentiment will wander too far off the soft landing path."
Premarket Movers
Electronic Arts fell 5.1% after it forecast fiscal second-quarter earnings of 72 cents a share to 89 cents a share on net revenue of $1.83 billion to $1.93 billion, missing analysts' expectations.
Match Group was up 7.4% after it swung to a profit in the second quarter and revenue rose 4% to $830 million, beating forecasts of $812 million.
Pinterest posted adjusted earnings and revenue in the second quarter that topped analysts' estimates. However, its shares fell 4.9%.
SolarEdge Technologies fell 13% after missing second-quarter revenue expectations and issuing a third-quarter revenue forecast that also was below estimates.
Fiscal third-quarter earnings from Starbucks topped Wall Street estimates, but sales came up short and its shares were down 1.9%,
Virgin Galactic fell 6.8% after reporting second-quarter revenue that missed analysts' estimates.
Forex:
The dollar edged low on the Fitch downgrade and MUFG said the move highlights issues with U.S. public finances, which it sees as a negative structural factor for dollar performance over the medium to long-term.
Jefferies said Fitch's decision to downgrade the U.S. shouldn't have much impact on the holding of U.S assets by international investors.
It estimates that "most investors have moved away from a strict AAA criteria given that Germany is the only large market with still a AAA rating."
However, it added that there was a medium-term trend to find alternatives to the dollar as a reserve currency, particularly in Asia.
Read USD-Based Investors Should Retain CNY Exposure, UBS Says
Read Don't Sell Sterling Yet, UBS Says
Energy:
Oil prices rose in Europe after U.S. inventories slumped by 15.4 million barrels, according to sources citing the API, which if confirmed by official Energy Department data would be the largest drawdown since at least 1982.
Metals:
Base metals were lower on weak China data, particularly on falling home sales, Commodity Research Group said. This has added to the U.S.'s debt rating downgrade from Fitch to create a dour mood for industrial metals.
Meanwhile, ANZ said gold prices are likely to remain rangebound in the near-term with the prospect of another rate hike in September from the Federal Reserve.
TODAY'S TOP HEADLINES
PG&E Scraps Tree-Trimming Program Once Seen as Key to Fire Prevention
The California utility company PG&E spent about $2.5 billion on a yearslong effort aimed at reducing wildfire risk by cutting or clearing more than a million trees growing alongside power lines.
It now says that work was largely ineffective and is eliminating the program, according to an internal analysis reviewed by The Wall Street Journal and interviews with utility executives.
Haleon Raises Guidance After Revenue Grew Ahead of Expectations
Haleon on Wednesday raised its full-year guidance as it reported a better-than-expected 10.4% organic revenue growth for the first half of 2023 on pricing and positive volume mix.
The consumer-healthcare business-which was spun out of GSK and is partly owned by Pfizer-reported revenue for the six months ended June 30 of 5.74 billion pounds ($7.33 billion), up from GBP5.19 billion a year prior. This was ahead of estimates taken from a company-compiled consensus which had the figure at GBP5.69 billion, and had seen organic growth of 8.2% for the half-year.
Fitch Downgrades U.S. Credit Rating
Fitch Ratings downgraded the U.S. government's credit rating weeks after President Biden and congressional Republicans came to the brink of a historic default, warning about the growing debt burden and political dysfunction in Washington.
The downgrade, the first by a major ratings firm in more than a decade, is evidence that increasingly frequent political skirmishes over the U.S. government's finances are clouding the outlook for the $25 trillion global market for Treasurys. Fitch's rating on the U.S. now stands at "AA+", or one notch below the top "AAA" grade.
$25 trillion Treasury market is in the spotlight as U.S. loses its AAA rating for a second time
Will August 2023 be a repeat of August 2011?
Fitch Ratings on Tuesday became the second major credit firm to cut the U.S. government's top AAA rates to AA+, a move that was swiftly condemned by the White House and the Treasury Department.
BOJ to Continue Easing Until Sustainable Inflation Is Achieved, Deputy Gov Says
Bank of Japan Deputy Gov. Shinichi Uchida said Wednesday that the central bank would maintain an easy policy stance despite its recent decision to make its yield curve control more flexible.
"The bank's decision to conduct yield curve control with greater flexibility aims at patiently continuing with monetary easing," Uchida said in a speech. "We do not have an exit from monetary easing in mind."
China Extends Tax Relief Measures to Support Small Businesses
China's finance ministry on Wednesday unveiled measures to help the nation's struggling small businesses as the economy's post-Covid-19 recovery loses steam.
The ministry said the tax measures implemented in January, which were supposed to expire at the end of the year, would be extended by four years to end-2027. These measures exempted small businesses with less than 100,000 yuan ($13,923) in monthly sales from paying value-added taxes, while small businesses which were supposed to pay a 3% value-added tax had the rate lowered to 1%.
Crypto Is Illegal in China. Binance Does $90 Billion of Business There Anyway.
Binance, the world's largest crypto exchange, was supposed to leave China behind when the country made cryptocurrency trading illegal in 2021.
Almost two years later, users traded $90 billion of cryptocurrency-related assets in China in a single month, according to internal figures viewed by The Wall Street Journal and current and former employees. The transactions made China Binance's biggest market by far, accounting for 20% of volume worldwide, excluding trades made by a subset of very large traders.
Trump Is Indicted in Federal Probe of His Efforts to Reverse 2020 Election
WASHINGTON-Donald Trump was indicted Tuesday in an unprecedented criminal case accusing the former president of trying to subvert the will of American voters through his attempts to cling to power after he lost the 2020 election.
The indictment by a federal grand jury in Washington, D.C. charges Trump with four crimes, including conspiring to defraud the U.S., obstructing an official proceeding, and conspiring against the rights of voters for his actions that culminated in the Jan. 6, 2021, attack by his supporters on the U.S. Capitol. The indictment charges Trump alone, but describes six co-conspirators working with him, including people identifiable as Rudy Giuliani and several other lawyers who worked with him to contest the 2020 election results.
Six Co-Conspirators Described in Trump's 2020 Election Indictment
The indictment of Donald Trump for his alleged crimes in seeking to reverse the 2020 election casts a spotlight on a circle of attorneys and advisers who helped spread claims of fraud and attempted to block the certification of electoral votes on Jan. 6, 2021.
Six co-conspirators and their actions were described in the former president's second federal indictment, submitted Tuesday afternoon by special counsel Jack Smith. The six weren't named and none have been indicted. Smith said the investigation continues.
Taiwan Unveils Dates for U.S. Stops by Vice President Despite China's Protests
TAIPEI-Taiwan Vice President Lai Ching-te plans to stop in New York and San Francisco this month on his way to and from a formal visit to Paraguay, defying Chinese warnings.
Lai is scheduled to land in New York on Aug. 12 and depart for Paraguay the following evening as part of his seven-day trip to attend the inauguration of Paraguay's incoming president, Santiago Peña Palacios, on Aug. 15, according to Alexander Yui Tah-ray, Taiwan's vice minister of foreign affairs.
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08-02-23 0620ET
