Tech drags stocks down as Fitch sours sentiment: Markets wrap

Stocks fell in Asia, dragged by technology shares, as Fitch Ratings’ downgrade of the US sovereign credit grade also weighed on risk sentiment.

An Asia Pacific equity gauge headed for the biggest decline in more than four months as technology stocks in Hong Kong dropped more than 3%. Japanese stocks also fell as a stronger yen dented the outlook for corporate profit.

Contracts for the Euro Stoxx 50, S&P 500 and Nasdaq 100 were all down. The S&P 500 had finished Tuesday with a small loss as the rally that drove the stock market up almost 30% from its October lows took a breather.

Further support measures from China failed to reverse the mood as well as some profit taking may be taking place after a broad uptrend in Asian shares following China’s Politburo meeting. Focus appears to be shifting to the effectiveness of the policy support as earlier optimism cools.

Fitch’s rating cut, announced before markets opened in Asia, initially pushed Treasuries higher before the moves stabilised, leaving the two-year yield down around two basis points.

“Think it’s just a catalyst for Asia traders to book profits,” said Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd., said on the declines in equities. “The market had a really good run in recent sessions. It’s just looking for something to get worried about.”

Investors say Fitch’s US downgrade to AA+ from AAA will do little to deter the top-notch status of US assets over the longer-term, citing a lack of alternatives and the economy’s solid growth. They are also taking cues from what transpired in the wake of a similar event in 2011, when S&P Global Ratings removed the highest rating for the US following an earlier debt-ceiling crisis. While that triggered a selloff in risk assets around the world, it boosted Treasuries as investors sought out havens.

“High inflation and growth remain the key triggers for bond demand,” strategists at DBS Bank Ltd., including Eugene Leow, wrote in a note. “Fitch’s rating downgrade should be largely mitigated by the substantial stock of US private wealth, with correspondingly high safe haven demand for US Treasuries.”

A gauge of the dollar was little changed. Still, the greenback was weaker against some of its Group-of-10 peers.

Mixed earnings

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

Advanced Micro Devices Inc. gained in late 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.”

Oppenheimer Asset Management’s John Stoltzfus now sees the S&P 500 index hitting 4,900 by the end of the year, leaving room for another 7% gain. The target change came a day after Morgan Stanley’s Michael Wilson, one of the market’s leading doomsayers, sounded less bearish than usual.

Stoltzfus’s 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.

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

• S&P 500 futures fell 0.5% as of 6:58 a.m. London time. The S&P 500 fell 0.3%
• Nasdaq 100 futures fell 0.7%. The Nasdaq 100 fell 0.3%
• Japan’s Topix fell 1.5%
• Australia’s S&P/ASX 200 fell 1.3%
• Hong Kong’s Hang Seng fell 2.1%
• The Shanghai Composite fell 0.9%
• Euro Stoxx 50 futures fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0994
• The Japanese yen rose 0.3% to 142.86 per dollar
• The offshore yuan fell 0.1% to 7.1930 per dollar
• The Australian dollar fell 0.5% to $0.6581
• The British pound was little changed at $1.2774

Cryptocurrencies

• Bitcoin rose 1.4% to $29,631.84
• Ether rose 0.7% to $1,861.56

Bonds

• The yield on 10-year Treasuries was little changed at 4.03%
• Japan’s 10-year yield advanced 2.5 basis points to 0.620%
• Australia’s 10-year yield advanced six basis points to 4.03%

Commodities

• West Texas Intermediate crude rose 1.1% to $82.23 a barrel
• Spot gold rose 0.2% to $1 949.14 an ounce