Markets went a little risk-off last week after one of the big three credit ratings agencies, Fitch, downgraded their US credit rating from from AAA to AA+. Included in the reasons for this was “the repeated debt-limit political standoffs and last-minute resolutions” which had “eroded market confidence”. Equities sold-off sharply after the announcement but all major US stock indices remain well above their much-watched 200 day moving averages. US government Bonds also sold-off on the news and longer-term Treasury yields rallied to their highest levels since November.
On Friday US jobs data showed the economy created 187k jobs in July. This was below the market expectation of 200k and is potentially a sign that employment growth is starting to cool – albeit very slowly. Despite the Fed’s rate hikes the US economy still appears resilient and therefore rates may have to stay higher for longer.
In the UK, the Bank of England raised rates by 0.25% to 5.25% and warned they will remain high for at least the next two years. The vote of the Monetary Policy Committee (MPC) was 6 to 3 in favour of the increase; two committee members wanted a 0.5% hike and one voted for no change.
This Wednesday sees the release of the latest US inflation report and it will be watched closely.
UK Market Chart 4th August 2023
US Market Chart 4th August 2023
US Risk Barometer 4th August 2023
Europe Risk Barometer 4th August 2023
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