On Tuesday, global markets fell and the dollar rose after Moody’s downgraded the credit ratings of ten small- to mid-sized US banks and China’s trade data was worse than expected in July, heightening fears about the global economic outlook.
The yuan fell to a three-week low as Asian markets and the Australian and New Zealand dollars, which are viewed as proxy currencies for Chinese growth, fell. The data increased pressure on China to give new stimulus to boost demand.
Moody’s also placed six banking titans on evaluation for potential downgrades, including Bank of New York Mellon (BK. N), US Bancorp (USB.N), State Street (STT.N), and Truist Financial (TFC.N), tempering a still-strong outlook for US GDP.
Longer term, a problem is unlikely, but rising interest rates and regional banks’ exposure to commercial real estate have put a shadow over the market, according to Anthony Saglimbene, chief market analyst at Ameriprise Financial in Troy, Michigan.
“Investors are using some of this news to trim positions that have done very well,” he explained. “Markets are just going through a period where investors are questioning whether stock prices have run ahead of some fundamentals.”
Credit card delinquencies surged to an 11-year high in the second quarter as assessed on a four-quarter average as Americans borrowed more than ever, according to the New York Federal Reserve Bank’s quarterly household debt and credit report.
When student loan repayments resume on October 1, discretionary spending will be reduced, maybe significantly, according to Troy Ludtka, senior U.S. economist at SMBC Nikko Securities Americas in New York.
“As a result, Americans will struggle to repay auto loans, credit cards, and, increasingly, mortgages,” he said.
MSCI’s U.S.-centric global stock performance index (. MIWD00000PUS) fell 0.6%. The pan-European STOXX 600 indexes (. STOXX) lost 0.23%, but losses were mitigated by Novo Nordisk’s shares surging 17.3% to a record high after a study revealed that their obesity therapy has a cardiovascular advantage.
After chastising lenders for failing to compensate depositors, Italy shocked the European banking sector by imposing a one-time 40% tax on Italian bank profits earned through higher rates.
The eurozone bank index (. SX7E) plummeted 3.54%, the most in a single day since the March financial crisis.
After a five-month rise that brought the benchmark S&P 500 (.SPX) and Nasdaq Composite (.IXIC) within 5% of their all-time highs, August has now seen five consecutive losses.
After a five-month surge brought both the S&P 500 (.SPX) and the Nasdaq Composite (.IXIC) within 5% of their all-time highs, both indices have lost five out of six sessions in August.
The Dow Jones Industrial Average (.DJI) was down 0.45%, the S&P 500 was down 0.42%, and the Nasdaq Composite was down 0.79%.
The S&P 500 is currently trading at about 18.5 times next year’s earnings, and “if we avoid a recession and analysts are correct, then the stock market is more fairly valued,” according to Saglimbene.
However, profits growth was negative in the second quarter and is likely to be flat in the third quarter, making this year’s prices a little stretched, he said.
The dollar index, a measure of the US currency against six rivals, climbed 0.45% after investors shifted to safer assets following weak Chinese trade numbers.
Country Garden (2007.HK), China’s largest privately held property developer, failed to pay two-dollar bond coupons due on August 6, adding to evidence of acute stress in the property sector.
The euro dropped 0.43% to $1.0955.
Bond rates in the United States and Europe dipped, undoing some of the recent gains.
The two-year Treasury yield, which often indicates interest rate forecasts, remained constant at 4.758%, while the 10-year Treasury yield declined 5.4 basis points to 4.024%.
Oil prices rose after the US Energy Information Administration forecasted 1.9% GDP growth in 2023, up from 1.5% previously. However, negative figures on China’s crude imports and exports overshadowed the report’s optimism.
US crude futures jumped 98 cents to $82.92 a barrel, while Brent rose 83 cents to $86.17.
Gold prices sank to a near one-month low as investors sought sanctuary in the dollar following disappointing Chinese trade data, while caution reigned ahead of Thursday’s U.S. inflation reports.
The Consumer Price Index (CPI) will be an important factor in the Federal Reserve’s next interest rate decision in September.
Gold futures in the United States finished 0.5% lower at $1,959.90 per ounce.
Please note that this article does not offer any instructions or suggestions regarding investment decisions. It is important for you to conduct your own research or seek professional advice from a qualified professional before conducting an investment decision.