LDN - Business

Wall St futures tumble after Fitch downgrades top-tier US rating

[August 02, 2023] By Johann M Cherian and Bansari Mayur Kamdar

(Reuters) - Wall Street futures tumbled on Wednesday after rating agency Fitch's move to downgrade the U.S. government's credit rating hit appetite for risky assets around the world.

Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years as well as a growing general government debt burden, making it the second major rating agency after Standard & Poor's move in 2011 to strip the country of its triple-A rating.

The yield on U.S. 10-year Treasury notes slipped to 4.02%. Safe havens gold and the Japanese yen rose, while the dollar index edged higher.

"Though the U.S. now holds two AA+ ratings, we think the latest downgrade does not reflect any new fiscal information and should only have a limited market impact," Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.

At 06:55 a.m. ET, Dow e-minis were down 104 points, or 0.29%, S&P 500 e-minis were down 24 points, or 0.52%, and Nasdaq 100 e-minis were down 132.25 points, or 0.84%.

Megacap stocks including Tesla, Nvidia, Meta Platforms and Microsoft fell between 0.8% and 2.5% in premarket trading.

Beating the trend, Advanced Micro Devices rose 1.6% after forecasting an upbeat finish to the year and on plans to launch AI chips that could compete with market leader Nvidia.

U.S. second-quarter earnings are now expected to fall 5.9% from a year earlier, as per Refinitiv data, compared with a 7.9% decline estimated a week earlier.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 20, 2023. REUTERS/Brendan McDermid/File Photo

The benchmark S&P 500 and tech-heavy Nasdaq took a breather in the previous session as investors entered a seasonally slow August. The blue-chip loaded Dow ended higher, underpinned by gains in Caterpillar after the global economic bellwether posted upbeat quarterly profits.

Among other early movers, Starbucks eased 1.9% after the world's largest coffeehouse chain missed market expectations for quarterly comparable sales.

CVS Health Corp gained 1.4% on beating Wall Street estimates for quarterly profit, boosted by strength in its pharmacy benefit management unit and lower-than-expected medical costs in its health insurance business.

DuPont de Nemours added 0.3% on beating estimates for second-quarter profit, benefiting from strong demand for materials used in aerospace, automotive and healthcare industries.

Wells Fargo said it expects to pay as much as $1.8 billion to help replenish a government deposit insurance fund that was drained of $16 billion this year after three banks collapsed, sending its shares 1% lower.

Investors also await the ADP National Employment report for July that could offer more clues on the domestic labor market, ahead of much awaited non-farm payrolls data due on Friday.

(Reporting by Johann M Cherian and Bansari Mayur Kamdar in Bengaluru; Editing by Saumyadeb Chakrabarty)

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