Summary
Wall Street stocks down following U.S. credit downgrade
10-year Treasury yields tick up
Dollar index gains on strong jobs data
Oil, gold prices decline
Aug 2 (Reuters) - Global stocks slumped on Wednesday, while Treasury yields ticked up and the dollar gained, as investors digested an unexpected downgrade of the United States’ top-tier sovereign credit rating and private payrolls data that pointed to U.S. labor market resilience.
While shares lost ground, investors showed little sign of panic after Fitch on Tuesday evening cut the U.S. by one notch to AA+ from AAA, citing fiscal deterioration.
“Look, no one is seriously considering the prospect that the U.S. would ever fail to make a payment on its debt,” said Eric Winograd, chief economist at AllianceBernstein in New York.
“There will continue to be demand for both long-term and short-term Treasuries, and I don’t see this downgrade as a significant signal of any trouble ahead.”
On Wall Street, the Dow Jones Industrial Average (.DJI) fell about 1%, to 35,282, the S&P 500 (.SPX) lost 1.38%, to 4,513 and the Nasdaq Composite (.IXIC) dropped 2.17%, to 13,973.
The downgrade hit global stock markets, taking Europe’s STOXX 600 index (.STOXX) down 1.35%. Asia-Pacific stocks dropped earlier, down about 2%, partly because of signs of weakness in China’s economy. (.MIAP00000PUS)
Long-term U.S. Treasury yields gained after strong private employment data and the announced refunding of the U.S. government’s maturing debt. U.S. 10-year yields were up 2.4 basis points to 4.074%.
The U.S. Treasury said on Monday it expected to borrow $1.007 trillion in the third quarter, the largest amount yet for that period. It also said it plans to “incrementally” increase the size of its auctions across the board in the third quarter and continue increases in future quarters.
The dollar rose on Wednesday as investors shrugged off Fitch’s downgrade while the private payrolls data bolstered the greenback as it suggested further labor market resilience. The U.S. dollar index was up 0.6%.
Credit default swaps, which insure exposure to U.S. Treasuries, were little moved, according to S&P Global Market Intelligence data. The CBOE Market Volatility Index (.VIX) jumped around 15% on Wednesday but was still near the lows of the last 12 months.
“The lack of movement in U.S. Treasury Bonds and the dollar index suggests the market has already largely quantified and assessed the damage done from recent fallouts,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
Fitch’s move, which came after it had placed the ratings on negative watch in May, drew an angry response from the White House, which called it ”arbitrary and based on outdated data” as it came two months after a debt ceiling agreement that averted a U.S. default.
While investors say the downgrade is unlikely to have a big impact on U.S. Treasuries, which underpin the financial system as an unrivalled global safe asset, it has injected some uncertainty into financial…
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