Hong Kong, China – Despite the repercussions of Fitch’s downgrade of US debt rating settling, profit-taking and increasing Treasury yields continue to put pressure on investors during a traditionally less appealing period for equities.
While the ratings agency’s decision to lower Washington’s AAA classification caused a race out of riskier assets, analysts believe that there will be limited long-term impact from the move.
However, traders are facing difficulties as they try to regain their footing after recent strong gains, as they reassess high valuations and the outlook for the US economy.
ADP’s data on new job creation, which exceeded expectations by reaching 324,000 jobs last month, indicates a tight labor market.
This news has caused optimism that the Fed may have already announced its last rate hike in July, due to recent reports of falling inflation and signs of a slowing economy.
READ: Economists believe the Fed’s last rate hike will be in July
The news also resulted in 10-year US Treasury yields reaching their highest point since November, which is also attributed to the Treasury selling more bonds than anticipated in an auction.
The VIX fear gauge also reached levels not seen since May.
All three main Wall Street indexes experienced significant declines, with the Nasdaq dropping more than two percent, as tech firms are more vulnerable to higher interest rates.
READ: Wall Street ends down as investors retreat after Fitch’s US rating downgrade
The selling trend spread to Asia, although some markets experienced fluctuations throughout the morning.
Tokyo dropped more than one percent, and Shanghai, Sydney, Seoul, and Wellington also experienced declines. However, gains were observed in Hong Kong, Singapore, Manila, and Jakarta.
According to Stephen Innes of SPI Asset Management, the next few weeks will be uncertain for investors as they consider their options following recent gains.
“As we approach the typically calmer summer season for markets, investors are discussing whether to expect a resurgence in risky investments in the coming weeks or prepare for a potentially significant decline if the data disappoints,” he wrote.
“This uncertainty is due to the high level of optimism already reflected in current prices.”
Focus is now on the release of US payrolls figures on Friday, which will be closely monitored for insights into the Fed’s next moves. Observers have warned that a strong report could increase bets on another rate hike.
Later on Thursday, the Bank of England is expected to announce its 14th rate increase as Britain grapples with high inflation – the highest among G7 nations – and a cost-of-living crisis.
READ: Bank of England set to raise rates for the 14th consecutive time
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
Denial of responsibility! Samachar Central is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
