Australia

Australian shares are sloping downward this morning following a disappointing session for stocks worldwide. Global markets suffered losses on Wednesday after the well-regarded credit ratings agency Fitch lowered its valuation of long-term US Treasury notes from AAA to AA+.

ASX futures were 60 points or 0.8% lower as of 6:00am on Thursday, suggesting that Wednesday’s losses will bleed into the Australian open.

US stocks and bonds suffered a wave of selling after America's credit downgrade, sending Treasury yields to the highest levels of the year and major indices toward their worst session in months.

The S&P 500 fell 1.4%, while the tech-heavy Nasdaq Composite lost 2.2%, its worst one-day performance since February. The Dow Jones Industrial Average shed 348 points, or 1.0%, dragged down by shares of Intel and Microsoft. The declines followed a global selloff in European and Asian markets. Canadian stocks also dropped, with the S&P/TSX Composite closing down 1.5%.

The yield on the 10 Year US Treasury note rose to 4.077%, its highest level since November, as bond prices fell.

Wednesday's declines put a dent in a steady rally for major indices that has continued for much of 2023, pulling US stocks to some of the highest levels of the past year and driving a boom in speculative bets on everything from artificial intelligence to meme stocks.

In commodity markets, Brent crude oil dropped 1.7% to US$83.43 a barrel while gold shed 0.5% to US$1,935.20.

The yield on 2 Year Australian government bonds remained at 3.81% while the 10 Year yield edged up to 4.02%. US Treasury notes were mixed, with the 2 Year yield edging down to 4.88% and the 10 Year yield rising to 4.07%.

The Australian dollar slipped to 65.44 US cents from its previous close of 66.11. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, moved up to 97.19.

Asia

Chinese shares ended lower with the banking and energy sectors leading the losses. ICBC fell 2.3% and PetroChina Co. declined 5.6%. Policy measures remained in focus after Beijing signaled fresh support for the economy. Goldman Sachs analysts said they expect further monetary policy easing as organic growth momentum remains weak and inflation level is low. Property and retailers gained in Wednesday's session. Greenland Holdings Corp. rose 1.2% and Yonghui Superstores added 9.9%. The benchmark Shanghai Composite Index closed 0.9% lower at 3261.69. The Shenzhen Composite Index fell 0.3% and ChiNext Price Index declined 0.2%.

Hong Kong's benchmark Hang Seng Index closed 2.5% lower at 19517.38, marking its biggest loss in over a month. The index has retreated from a recent rally spurred by a slew of Chinese stimulus measures. Asian markets broadly fell, as investor sentiment declined after Fitch downgraded the US' sovereign rating over concerns of expected fiscal deterioration in the next three years. Losses were broad-based but led by the health services sector. Hansoh Pharmaceutical fell 6.8% and JD Health International was down 4.8%. The Hang Seng Tech index declined 3.3%, with Baidu down 3.8% and Meituan sliding 3.3%. Country Garden Services surged 18.0% after guiding for higher 1H revenue and announcing share buyback plans.

The Nikkei Stock Average of Japan ended 2.3% lower at 32707.69, marking its biggest percentage-point drop since Dec. 20. The drop came as uncertainty grew over the global economic outlook following Fitch's downgrade of the US’ credit rating. Brokerage and insurance stocks led the declines. Nomura Holdings dropped 8.5% and Tokio Marine Holdings lost 5.8%.

Indian shares ended lower, tracking regional losses. Asia-Pacific markets have felt the ripples from Fitch's downgrade of the US' credit rating. Heavyweight industrial and financial stocks led losses. Tata Steel fell 3.45% and JSW Steel dropped 2.2%. HDFC Bank was down 1.3% and Axis Bank declined 1.5%. Nestle India and Asian Paints were among the top performers, rising 1.15% and 0.6%, respectively. The benchmark Sensex index closed 1.0% lower at 65782.78.

Europe

European stocks dropped as Wall Street fell after credit-rating agency Fitch downgraded the US sovereign credit rating. The pan-European Stoxx Europe 600 and the German DAX fell 1.4%, while the French CAC 40 backtracked 1.3%. Analysts noted that the rating downgrade had affected risk appetite across the board.

"While there isn't much new in the downgrade itself, it seems to have been the trigger for some wider selling," IG analyst Chris Beauchamp wrote. "With softer data and earnings also hitting sentiment, stocks seem ripe for an August correction."

The United Kingdom’s FTSE 100 closed down 1.4% to 7561 points, in line with global peers and mainly dragged by commodity-exposed stocks. Retailer Ocado led the index’s top fallers, down 5.6%, followed by Endeavour Mining, down 5.2% after posting a 2Q net loss. Defense company BAE closed up 6.4%, leading a handful of companies in positive territory, after reporting strong 1H operating profits on the back of higher total sales. ConvaTec shares rose 6.3% after reporting a 1H revenue rise and raising its full-year guidance, CMC Markets analyst Michael Hewson explained.

North America

US stocks and bonds suffered a wave of selling after America's credit downgrade, sending Treasury yields to the highest levels of the year and major indices toward their worst session in months.

The S&P 500 fell 1.4%, while the tech-heavy Nasdaq Composite lost 2.2%, its worst one-day performance since February. The Dow Jones Industrial Average shed 348 points, or 1.0%, dragged down by shares of Intel and Microsoft. The declines followed a global selloff in European and Asian markets. Canadian stocks also dropped, with the S&P/TSX Composite closing down 1.5%.

The yield on the 10 Year US Treasury note rose to 4.077%, its highest level since November, as bond prices fell.

Wednesday's declines put a dent in a steady rally for major indices that has continued for much of 2023, pulling US stocks to some of the highest levels of the past year and driving a boom in speculative bets on everything from artificial intelligence to meme stocks.

Investors turned more cautious after the downgrade and a recent stretch of earnings results, and some portfolio managers said they were wary about how much higher major indices could climb. Rising bond yields may shift the calculus for many investors deciding where to park their cash at a time when the S&P 500 has rallied almost 18% this year.

"Now that you have that additional pressure from higher yields, that could make for a tougher setup here for the weeks to come," said Adam Phillips, managing director at EP Wealth Advisors, who said he is cautious on stocks in coming months.

The declines across the market Wednesday show how the 2023 investing playbook has been rapidly upended in recent months. At the start of the year, many investors believed that risks on the economic horizon could constrain Treasury yields. Instead, a stretch of strong economic data, debt sales and the US downgrade have driven yields higher.

Following the resolution of the spring's debt-ceiling standoff, investors are expecting billions of dollars of incremental additions to the size of the Treasury market as the government increases its borrowing. That expected increase in the supply of Treasury securities may be weighing on prices, which pushes up yields.

"That's what's really driving things," said Matthew Tym, managing director at Cantor Fitzgerald, of the move in Treasury yields.

Of course, some investors said they were not worried about the country's creditworthiness despite the downgrade. Jamie Dimon, the chief executive of JPMorgan Chase, said Fitch's downgrade of the US credit rating should not be too concerning to investors and that the US is home to the "best economy the world's ever seen."

Investors have also been sifting through a wave of earnings results in recent weeks, many of which have come in better than expected. Still, a selloff in chipmaker Advanced Micro Devices shares on Wednesday underscored how high the bar is for earnings season after the stock market rally.

AMD reported second-quarter sales and earnings that topped Wall Street estimates on Tuesday afternoon. But investors were evidently looking for more: AMD shares were down 7% on Wednesday. That followed disappointing results last month from peers Taiwan Semiconductor Manufacturing and Texas Instruments.

The technology behemoths that have propelled the market higher were some of the hardest hit in trading Wednesday. These stocks tend to be especially sensitive to rising bond yields.

Nvidia shares dropped 4.8%, while Micron Technology shed 3.7%. Apple and Amazon.com report earnings on Thursday, giving investors the next big read on how tech heavyweights fared this earnings season.

Shares of Tupperware and Yellow tumbled around 32% and 16%, respectively, chipping away at their big run-ups in recent weeks. Investors have doubled down on shares of the two companies and helped send them sharply higher, in moves reminiscent of the 2021 meme mania.

Some investors said that major indices were due for a pullback after a historically calm stretch. It has been 112 days since the S&P 500 notched a one-day decline of at least 2%, the longest since February 2020, according to Dow Jones Market Data.