Asia shares extend losses after Fitch cuts US rating

August 03, 2023 (MLN): Shares in Asia fell for a third day following losses on Wall Street amid Fitch’s downgrade of the U.S., while Treasuries extended a selloff and the yen weakened after fresh Bank of Japan intervention, as Bloomberg reported.

Equity benchmarks in Japan, Australia, and South Korea fell, while those in mainland China were little changed. Taiwan’s markets are shut due to the approach of a typhoon.

The dollar inched higher while the yen weakened after the Bank of Japan announced an unscheduled round of bond buying.

The intervention was the second this week under the more flexible yield curve control regime unveiled last week but did little to stem a rise in yields on Thursday.

European equity futures were slightly lower while US contracts traded mostly flat after the worst day in three months for the S&P 500.

The US benchmark slipped 1.4% Wednesday while the Nasdaq 100 fell 2.2%, sending the VIX index, known as Wall Street’s “fear gauge” to the highest since May.

“We’re seeing the negative reaction overnight, harking back to the perception that we’re fully valued in the US,” Lucy Meagher, an investment adviser for Evans and Partners Pty Ltd in Sydney, said on Bloomberg Television.

Investors should consider rotating into small-caps from large-caps and away from US stocks into emerging markets, she said.

Treasuries fell in Asia, after a Wednesday selloff pushed 10-year yields to the highest since November.

The selling was helped along by private payrolls data that showed US companies added 324,000 workers last month, beating the consensus forecast of 190,000.

Investors also digested news that the Treasury will issue $103 billion of securities next week, spanning three-, 10- and 30-year debt.

The quarterly issuance is up from $96 billion, and slightly more than forecast, and is fresh on the heels of Fitch Ratings’ downgrade of the US on Wednesday.

Bill Ackman, founder and chief executive officer of Pershing Square Capital Management, said he had shorted 30-year Treasuries, which he described as overbought from a supply and demand perspective.

The Bank of England is forecast to raise its benchmark interest rate by 25 basis points to 5.25% later Thursday.

Speculation is also growing it will surprise economists by signaling an increase to the pace of bond sales as it looks to reduce its outsized footprint in the market.

In China, Evergrande Property Services Group Ltd., a unit of the highly indebted developer, slid by about half in Hong Kong as the company resumed trading for the first time since March 2022. Pressure on

China’s property sector weighed on the country’s junk bonds, which fell for a second day. Superconductor-related shares in China also declined after a sharp rally over the past week.

Investors will be keeping a keen eye on Apple Inc. earnings due Thursday. The iPhone maker is expected to report its third consecutive year-over-year revenue decline.

Amazon.com Inc. will also report quarterly results Thursday with investors and analysts closely watching its cloud computing business.

Corporate results on Wednesday included PayPal Holdings Inc. revealing a key measure of profits shrank in the second quarter as the company had to set aside more money to cover souring loans it has made to merchants.

Shopify Inc. reported sales and profit for the second quarter that beat analyst expectations.

Elsewhere, oil rose after a two-day selloff while gold was little changed. Bitcoin traded just above $29,000.

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