Asia stocks opened lower and haven assets gained after Fitch Ratings downgraded the US from the top-tier sovereign rating.

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Treasuries gained modestly in Asia as the rating cut spurred modest demand for assets deemed safe, which counter-intuitively include debt issued by the world’s biggest economy. The yen and Swiss franc also advanced against the dollar. The move by Fitch comes at a particularly sensitive time for rates markets, with the Treasury preparing to ramp up issuance of longer-dated securities

Japanese equity benchmarks slumped more than 1%, while those for South Korea and Australia also fell. Futures for Hong Kong stocks were 0.7 percent lower.

Contracts for the S&P 500 and Nasdaq 100 were down 0.4 percent and 0.5 percent, respectively, after the S&P 500 finished Tuesday with a small loss as the rally that drove the stock market up almost 30% from its October lows took a breather.

Fitch’s US downgrade to AA+ from AAA follows major political battles over the nation’s borrowing and repeated standoffs over raising the debt limit. Moody’s Investors Service currently rates the US sovereign Aaa, its top rating. S&P Global Ratings has it at a score of AA+, one notch below the top tier.

The move by Fitch may “ironically support Treasuries buying on concerns of follow-on downgrades to US corporate credit,” said Chang Wei Liang, strategist at DBS Bank Ltd. in Singapore. “High inflation and growth remain the key triggers for Treasury selling, with credit ratings shifts largely mitigated by the substantial stock of US private wealth, and a correspondingly large safe haven demand for US Treasuries.”

Mixed earnings

Just a few days ahead of an all-important jobs report, data suggested some softening in demand for workers in a still tight US labor market. The numbers weren’t enough to entice investors, who also grappled with a mixed bag of corporate earnings.

In late trading, Advanced Micro Devices Inc. gained 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.

Oppenheimer Asset Management’s John Stoltzfus lifted his target on the S&P 500 index, a day after Morgan Stanley’s Michael Wilson, one of the market’s leading doomsayers, sounded less bearish than usual.

Stoltzfus now sees the S&P 500 index hitting 4,900 by the end of the year, leaving room for another 7 percent gain. The target would mark a new record for the gauge, and one that plays out against bearish predictions by prominent Wall Street names such as Wilson, JPMorgan’s Marko Kolanovic and Bank of America Corp.’s Michael Hartnett.

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

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First Published:Aug 2, 2023 6:34 AM IST