Evening Wrap: ASX 200 falls, iron ore slides to US$100 + Does the US credit rating downgrade matter?

The Index falls for a second straight session on weaker iron ore price and a weak lead from Wall Street, Australia's trade surplus remained mostly unchanged in June, China's services PMI remains in expansion territory, a closer look at the US credit downgrade and brace yourself for some heavyweight US earnings, with Amazon and Apple due to report overnight.

Let's dive in.

ASX 200 Session Chart

ASX 200 falls and closes near session lows (Source: Market Index)

Markets

The ASX 200 continued to sell off on Thursday and a little off session lows. Every sector sector besides Telcos was red, with growth and resources leading to the downside. Singapore iron ore futures fell another 2% to US$101 a tonne (down almost 12% in the last six sessions) which weighed on BHP, Rio Tinto and Fortescue shares. The uptick in volatility and distribution these past couple of days is really starting to unravel (and exacerbated by the US credit rating downgrade). Tonight will be a massive session for US earnings, with Amazon and Apple reporting after the close. Get ready for some "ASX 200 to rise/fall on better/worse-than-expected earnings" headlines.

Economy

Australia’s trade surplus was $11.3bn in June, down from $11.8bn in May.

• Exports fell $987m or 1.7% month-on-month reflecting an easing of coal, mineral fuels and metal shipments 

• Imports fell $1.8bn or 3.9% month-on-month as slowing business activity weighed on domestic demand

China’s services PMI rose to 54.1 in July from 53.9 in June.

• Beat consensus expectations of a fall to 52.5

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Market Insights

The US Credit Downgrade: Does it Matter?

On Wednesday, Fitch downgraded America's credit rating from AAA to AA+. But what does it actually mean?

Fitch placed the US on watch back in May but pulled the trigger due to a "steady deterioration in standards of governance over the last 20 years," with reference to the recent debt ceiling negotiations and January insurrection.

The downgrade was blasted by several figureheads including Janet Yellen, former Treasury Secretary Larry Summers and even JPMorgan's Jamie Dimon. The general view is that the rating is mostly symbolic and ultimately its the bond market that determines credit ratings.

While the downgrade might not be a big deal, it still triggered a bit of a selloff across equity markets and America's reputation (or ego) will also take a hit from the downgrade.

Funnily enough, the Atlanta Fed's first GDP nowcast for the third quarter came in at 3.5%. If this comes into fruition, it would mark the strongest inflation-adjusted growth since the December quarter 2021.

This isn't the first time the US' credit rating was downgrade. On August 8, 2011 the S&P cut its credit rating to AA+ on concerns about the government's budget deficit and rising debt burden. The S&P 500 tumbled 6.7% on the day of the downgrade and traded in an extremely volatile fashion over the next 2-3 months (and the ASX 200 traded in a similar fashion, chart below).

ASX 200 performance in August 2011 (Source: TradingView)

Interesting news and movers

Trading higher

• +8.0% Tietto Minerals (TIE) – July gold production

• +5.6% Australian Strategic Materials (ASM) – Binding US agreement

• +3.3% Virgin Money (VUK) – Earnings

• +3.1% Bellevue Gold (BGL) – Drill results

Trading lower

• -34.1% Solvar (SVR) – Preliminary earnings

• -14.8% Aeris Resources (AIS) – Production update (Wed)

• -11.9% Lindian Resources (LIN) – Maiden MRE

• -3.8% Pinnacle Investment Management (PNI) – Earnings

• -3.8% Downer (DOW) – Impairment and guidance

• -3.2% Polynovo (PNV)

• -2.7% Link Administration (LNK) – Preliminary earnings

• -1.9% OFX Group (OFX) – Trading update

• Tech sector move: Xero (-2.7%), Siteminder (-2.1%), Data#3 (-2.1%), NextDC (-2.0%), Wisetech Global (-1.4%)

Broker notes

Broker notes are unavailable today.

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