Australia

Australian shares are expected to decline this morning following another lousy day on Wall Street. After Fitch downgraded its rating of US Treasury notes yesterday, attractive bond yields spurred some investors to turn away from stocks.

ASX futures were 9 points or 0.1% lower as of 6:00am on Friday, suggesting a downward tilt at the open.

US stocks edged lower Thursday, extending their recent slide as a jump in bond yields weighed on the market's appetite for risk.

The S&P 500 fell for a third consecutive day, bringing its losses in the first three days of August to 1.9%. Investors said it made sense that stocks might pull back after a rally that catapulted the broad US index up nearly 20% in the first seven months of the year.

The S&P 500 dropped 0.3%, while the Dow Jones Industrial Average declined 0.2%, or 66.63 points. The tech-heavy Nasdaq Composite slipped 0.1%. Canadian stocks also fell, with the S&P/TSX Composite losing 0.5%.

In commodity markets, Brent crude oil gained 2.5% to US$85.28 a barrel while gold edged down 0.1% to US$1,933.55.

Australian government bonds were higher, with the 2 Year yield increasing to 3.82% and the 10 Year yield rising to 4.10%. US Treasury notes were mixed, with the 2 Year yield declining to 4.89% and the 10 Year yield increasing to 4.19%.

The Australian dollar rose slightly, to 65.45 US cents from its previous close of 65.37. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, leaned lower to 97.08.

Asia

Chinese shares closed higher, reversing morning losses and bucking a broader downturn among Asian equities amid risk-off sentiment. Financial and property stocks led the gains. Citic rose 2.4% and Huatai Securities added 2.95%. Among developers, Poly Developments gained 1.8% and China Vanke rose 1.9%. Upbeat Caixin services PMI data for July was in focus, as investors continued to watch for further moves by Beijing to boost the economy. Among the losers were automakers and hardware stocks. Great Wall Motor fell 1.2% and Zhongji Innolight shed 2.5%. The benchmark Shanghai Composite Index closed 0.6% higher at 3280.46. The Shenzhen Composite Index added 0.3% and the tech-heavy ChiNext Price Index rose 1.1%.

Hong Kong shares ended lower for a third straight day amid broad risk-off sentiment after an overnight selloff in US Treasuries and stocks. This may spark near-term caution toward Asian stocks, but is unlikely to have a fundamental impact, Nomura analysts said in a research note. Losses on the HSI were led by the retail and energy sectors. E-commerce giants Alibaba and JD.com fell 2.1% and 1.6% respectively, while oil majors Cnooc and Sinopec both slid 1.6%. Beer maker Budweiser Brewing slumped 4.1% after posting a 1H profit fall on higher costs. Among the gainers were Techtronic Industries, up 3.9%, and Xinyi Solar, up 3.3%. The benchmark Hang Seng Index fell 0.5% to 19420.87. The Hang Seng Tech index rose 0.4%.

Japanese stocks ended lower, dragged by falls in auto and electronics shares, as uncertainty grew over the global economic outlook following Fitch's US debt downgrade. Toyota Motor dropped 3.8% and Nidec shed 3.7%. TDK lost 10% after it cut its full-year guidance. The Nikkei Stock Average fell 1.7% to 32159.28.

Indian shares closed lower for the third straight day, ending nearly at a one-month low. Despite the recent falls, Morgan Stanley upgraded its view on Indian equities to "overweight" from "equal weight", citing supportive foreign inflows, macroeconomic stability and positive earnings outlooks. Losses were broad-based and led by heavyweight financial stocks. Bajaj Finserv lost 2.3% and ICICI Bank fell 2.2%. Fashion accessories company Titan was the worst performer in the Sensex, falling 2.6% after reporting its 1Q net profit dropped 4.1% on year. The benchmark Sensex index fell 0.8% to settle at 65240.68.

Europe

European stocks dropped after the Bank of England increased UK interest rates by 0.25 percentage points to 5.25%. The pan-European Stoxx Europe 600 fell 0.6%, the French CAC 40 slipped 0.7% and the German DAX retreated 0.8%. Tech, telecom and airline stocks led the losses.

The BOE looks set to increase UK rates by another 0.25 percentage points to 5.5% in September following Thursday's hike, Danske Bank said. "Wage growth and service inflation remain the key releases to follow," Danske Bank analysts wrote.

The United Kingdom’s FTSE 100 closed 0.4% lower, its third fall in succession. A combination of rising US yields (a decline in UK yields notwithstanding) and concerns over lower earnings guidance weighed on markets, analysts at CMC Markets explained, adding that the weakness in US markets also dragged on the broader risk outlook in Europe.

There have been some positives, with banks and house builders seeing a rebound in the aftermath of the Bank of England's decision to raise rates by 25 basis points, as traders pared back bets on the peak bank rate, said Michael Hewson, chief market analyst at CMC Markets UK. "This optimism over a lower terminal rate has helped the likes of Barclays [and] NatWest eke out gains on the FTSE 100," Hewson said.

North America

US stocks edged lower Thursday, extending their recent slide as a jump in bond yields weighed on the market's appetite for risk.

The S&P 500 fell for a third consecutive day, bringing its losses in the first three days of August to 1.9%. Investors said it made sense that stocks might pull back after a rally that catapulted the broad US index up nearly 20% in the first seven months of the year.

The S&P 500 dropped 0.3%, while the Dow Jones Industrial Average declined 0.2%, or 66.63 points. The tech-heavy Nasdaq Composite slipped 0.1%. Canadian stocks also fell, with the S&P/TSX Composite losing 0.5%.

Yields on longer-term US government bonds continued to march higher, prompting investors to take a fresh look at their allocations among asset classes. The yield on the benchmark 10 Year US Treasury note climbed to 4.188%, its highest settle since November, from 4.077% Wednesday. The 30-year Treasury's yield rose to 4.304% from 4.164% a day earlier.

"The question is how high will the rates go and what is going to be the impact on equities and on the economy?" said Olivier Sarfati, head of equities at GenTrust.

When investors can get high yields from Treasurys, they are less inclined to take the risk that comes with owning stocks. Higher rates also reduce the value of companies' future cash flows in commonly used pricing models.

The effect of the rising yields could be seen in corners of the market where investors turn for bond-like returns. The utilities and real estate segments were the worst performers of the S&P 500's 11 sectors, dropping 2.3% and 1.4%, respectively. Those groups boast chunky dividend yields that are especially attractive when interest rates are low.

Energy shares, by contrast, led the market higher, advancing 1% as oil prices rose. Brent crude, the global oil benchmark, gained 2.3% to $85.14 per barrel after Saudi Arabia said it would extend its efforts to restrict oil supplies.

Earnings reports drove moves among individual stocks. PayPal Holdings shares declined 12% after a key metric showed that much of the company's growth is coming from lower-margin sources.

Shares of Robinhood Markets dropped 7.2% after the online broker reported a drop in monthly active users. Qualcomm shares fell 8.2% after the maker of mobile-phone chips reported disappointing sales and said it plans more layoffs.

With about four out of five companies in the S&P 500 having reported earnings, analysts expect that profits fell 5.8% in the second quarter compared with a year earlier, according to FactSet. They are predicting that earnings for 2023 as a whole will come in about flat.

Investors are looking ahead to Friday's jobs report to assess the strength of the labor market and look for clues about the Federal Reserve's next moves in its campaign against high inflation. "A lot of market participants are watching the payrolls data very, very closely," said Sinead Colton Grant, head of investor solutions at BNY Mellon.