Global stocks dropped as Fitch Ratings’ downgrade of the US sovereign credit grade spurred a retreat from riskier assets.

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Equity investors already on edge before a series of imminent market-moving events in the form of US employment data, a UK rates decision and key tech earnings were handed an extra dose of jeopardy after Fitch stripped the US of its top-tier rating.

Financial services and mining stocks led the retreat in Europe, while contracts for the S&P 500 and the Nasdaq 100 fell more than 0.5%. Asian stocks headed for the biggest decline in more than four months as technology names dropped. Japanese stocks dropped the most this year as gains in the yen dented the outlook for corporate profit.

In individual stock moves, Siemens Healthineers AG fell after the German medical technology company missed estimates. Hugo Boss AG slumped even as the retailer raised its guidance for 2023 after second-quarter results topped estimates.

Reaction to the Fitch news was calmer in Treasuries and the dollar. Yields were steady, while a gauge of greenback strength gained 0.1%.

Investors said the downgrade to AA+ from AAA shouldn’t harm the top-notch status of US assets over the longer-term, citing a lack of alternatives and the economy’s solid growth. A similar event in 2011, when S&P Global Ratings removed the highest rating for the US following an earlier debt-ceiling crisis, also offers a useful guide. While that triggered a selloff in risk assets, it boosted Treasuries as investors sought havens.

“We think the latest downgrade does not reflect any new fiscal information and should only have a limited market impact,” said Mark Haefele, chief investment officer at UBS Global Wealth. “Many major Treasury holders, such as funds and index trackers, will likely have already prepared for the move to avoid having to force sell their existing holdings. Safe haven demand amid the downgrade jitters could also counterintuitively support Treasuries in the short term.”

In other earnings news, Advanced Micro Devices Inc. gained in late US trading after the company topped second-quarter estimates and said it was making further inroads in artificial-intelligence computing. Starbucks Corp. dropped as its quarterly sales fell short of analysts’ estimates, a sign that momentum may be slowing for the coffee giant amid higher prices and tighter pocketbooks.

“People care a lot more about what the management guidance is for the second half of this year and maybe into next fiscal year,” Helen Zhu, chief investment officer at Nan Fung Trinity, said on Bloomberg Television. “Any kind of signs of better days ahead, that’ll get the market a lot more excited versus just what the backward looking numbers look like.”

Elsewhere, oil extended its rally after an industry estimate pointed to a huge drawdown in US inventories, adding to signals the market is tightening.

Key events this week:

  • China Caixin Services PMI, Thursday

  • Eurozone S&P Global Eurozone Services PMI, PPI, Thursday

  • Bank of England rate decision, Thursday

  • US initial jobless claims, productivity, factory orders, ISM Services, Thursday

  • Eurozone retail sales, Friday

  • US unemployment rate, non-farm payrolls, Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 fell 1.1% as of 8:28 a.m. London time

  • S&P 500 futures fell 0.6%

  • Nasdaq 100 futures fell 0.9%

  • Futures on the Dow Jones Industrial Average fell 0.5%

  • The MSCI Asia Pacific Index fell 1.8%

  • The MSCI Emerging Markets Index fell 1.8%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro was little changed at $1.0986

  • The Japanese yen rose 0.4% to 142.72 per dollar

  • The offshore yuan fell 0.1% to 7.1946 per dollar

  • The British pound was little changed at $1.2771

Cryptocurrencies

  • Bitcoin rose 1.3% to $29,601.32

  • Ether rose 0.5% to $1,858.72

Bonds

  • The yield on 10-year Treasuries was little changed at 4.03%

  • Germany’s 10-year yield declined two basis points to 2.54%

  • Britain’s 10-year yield was little changed at 4.40%

Commodities

  • Brent crude rose 0.8% to $85.56 a barrel

  • Spot gold rose 0.2% to $1,948.65 an ounce

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Brett Miller.

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©2023 Bloomberg L.P.



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