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Global Stocks Dragged by US Banking Sector Weakness, Disappointing Chinese Data

Published 2023/08/10, 09:26

Global stocks fell on Tuesday as risk sentiment deteriorated after another round of disappointing economic data from China, while Moody's downgraded several small to mid-sized US banks, warning that the sector's credit strength will likely be challenged by funding risks and weaker profitability.

Wall Street closed lower, dragged by banking stocks after Moody's also placed eleven major lenders on review for potential downgrades, including Capital One, US Bancorp (NYSE:USB), Bank of New York Mellon (NYSE:BK), and Citizens Financial - a move that dampened the US growth outlook. "Many banks' second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital," Moody's said in a note. “Rating agency peer Fitch also downgraded the US by a notch to AA+ due to fiscal deterioration and repeated debt ceiling negotiations left to the last minute,” Reuters added. The S&P 500 fell 0.40% on Tuesday after paring an earlier loss. The Dow lost 0.40%, and the Nasdaq fell 0.80%.

European stocks fell on Tuesday as traders assessed the latest German inflation data and a new tax imposed by the Italian government on excess profits. Italy imposed a 40% windfall tax on banks' additional earnings from higher interest rates, sending European stocks on a nosedive. “The new windfall tax will have an impact on banks' net interest margins, which are a measure of the net return on earning assets such as loans, leases, and investment securities,” Reuters explained. Meanwhile, data released on Tuesday showed that consumer prices in Europe's largest economy increased by 0.30% m/m in July 2023. On an annualised basis, Germany’s inflation rate eased to 6.20% from 6.40%, “a move that could persuade the European Central Bank to pause its prolonged tightening cycle at its next policy meeting in September,” Reuters added. At 20h00 local time, Germany’s DAX traded 0.20% lower, while France’s CAC 40 and the UK’s FTSE 100 dropped 0.10% respectively.

Asian equity markets mostly fell on Tuesday, tracking a slump on Wall Street as banking sector weakness dampened investor sentiment. Investors also reacted to data showing China’s CPI declined for the first time in over two years, fanning deflation fears. Meanwhile, China's imports fell by 12.40% y/y in July 2023, worse than forecasts of a 5% decline, while exports contracted 14.50%, compared to expectations of a 12.50% decline, signalling that the world’s second-largest economy may be struggling.

The local bourse was little changed on Tuesday, ending 0.23% lower as investors continued to assess how companies have been faring in a high-interest rate environment, as well as the impact of disappointing Chinese data on commodity pricing and overall global economic growth. The local currency weakened as much as 1.60% on Tuesday, touching R19/$ for the first time in four weeks.

Commodities were broadly weaker, with platinum sliding 2.10% to $899.80/oz and gold down 0.51% to $1 925.75/oz, both pressured by a stronger dollar. At 20h00 local time, Brent crude traded at $86.58 a barrel.

PSG Wealth Daily Investment Update, 10 August 2023

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