Market Wraps

Morning Wrap: ASX 200 to fall, Fitch downgrades US credit rating + Is this a healthy pullback?

Thu 03 Aug 23, 8:33am (AEST)

ASX 200 futures are trading 58 points lower, down -0.80% as of 8:20 am AEST.

The S&P 500 logged its first decline of 1% after more than two months without one, Fitch downgrades US credit rating from AAA to AA+, PayPal's underwhelming margins eclipses gains from upbeat consumer spending, Apple and Amazon set to report tomorrow and a deeper dive into the Bank of Japan's yield control curve.

Let's dive in.


S&P 500 intraday
S&P 500 sold off intraday and closed at worst levels (Source: TradingView)


S&P 500 daily chart
S&P 500 daily chart (Source: TradingView)


  • S&P 500 -1.38%, Nasdaq -2.17%, Dow -0.98%, Russell 2000 -1.37%

  • S&P 500 marks its first 1% decline after more than two months without one

  • S&P 500 sold off intraday to finish near worst levels

  • Consumer Staples and Healthcare sectors finished in positive territory

  • Markets cautious on US credit rating downgrade – S&P previously downgraded US credit rating back in August 2011 and the S&P 500 finished that month 5.7% lower and fell a further 7.2% in September 

  • Yields continued to edge higher – The US 10-year marked its highest close since November 2022 at 4.09%

  • Commodities broadly weaker including Gold (-0.8%), Copper (-1.7%) and Oil (-3.0%)

  • US pulls back 6m barrels of oil purchase for reserves due to market conditions (Reuters)


  • Fed's Bostic doesn't see need for September hike (Bloomberg)

  • Chicago Fed's Goolsbee repeats September decision to depend on data (Reuters)

  • BoE chief Bailey can't ignore recession warning lights any longer (Telegraph)


  • SoftBank's Arm unit targeting September IPO worth US$60-70bn (Bloomberg)

  • Salesforce to lay off more workers after previous 10% headcount cut (Bloomberg)

  • UBS laying off employees from Credit Suisse's investment bank (Reuters)

  • Meta introduces AudioCraft AI tool to produce music from text (Reuters)

  • Ford vehicle sales up 6% yearon-year as pickups, SUVs offset weak EV salses (CNBC)


  • Approximately two-thirds of the S&P 500 have now reported. The earnings beat rate is sitting around 82% or roughly five percentage points above the five-year average

  • Apple and Amazon are both set to report after the close tomorrow. Apple is expected to post its largest third quarter revenue drop since 20116 while the focus for Amazon earnings will be on AWS growth

Doordash (-0.7%, after hours +4.9%): Revenue beat but slightly larger-than-expected loss, quarterly order volume increased 25% to 532 million, revenue up 33% to US$2.1bn and a net loss of $172m. 

Ferrari (-1.3%): Double beat, raised full year guidance to 5.8bn euros and eps of 6.25-6.40 euros (from previous guidance of 5.7bn and 6.0-6.20 euros), quarterly revenue and profits rose 14% and 33% respectively. 

  • "Deliveries reflected a rich product mix, while we continue to manage a very strong order book in all geographies ...The decision to revise the guidance upwards was supported in particular by stunning results in personalisation" – CEO Benedetto Vigna

PayPal (-3.1%, after hours -7.5%): Both revenue and earnings in-line with expectations, quarterly payment volumes rose 11% to US$376.5bn, revenue up 7% to US$7.3bn, cash outflows of US$400m reflecting a US$1.2bn negative impact from European BNPL loans.

Unity Software (-8.5%, after hours +5.0%): Revenue and earnings exceeded guidance, revenue of US$533m vs. guidance of US$510-520 and represents more than 80% year-on-year growth.

  • "We estimate that for the second quarter of 2023, we grew revenue faster than the markets in which we compete, and expect to continue to do so for the balance of the year.” – CEO John Riccitiello


  • Fitch downgraded US credit rating from AAA to AA+ (Fitch)

  • US private payrolls rose by 324,000 vs. 183,000 consensus in July (Reuters)

  • Australia, Sweden, Switzerland amongst countries still with AAA ratings after US downgrade (Bloomberg)

  • South Korean inflation lowest in 28 months, strengthening expectations of another hold in August (Bloomberg)

  • New Zealand unemployment rate rises, wage growth stabilises (Bloomberg)

  • China urges local governments to raise issuance of infrastructure bonds (Bloomberg)

Deeper Dive

The Overnight Tumble

Hi Kerry here. A few quick points about the overnight move.

  • The US market has been running hard which makes it due for a pullback

  • According to NDR Research, it's been 97 days without a 3% correction for the S&P 500. Since 1926, the Index has fallen 3% a median of once every 12 days

  • The current stretch without one marks the fifth longest since 1984

  • Carson Research says that the S&P 500 has not experienced a 1% decline for more than two months, which is generally a positive trend for markets. This trend has seen the S&P 500 higher 26 out of 27 times since 1980, up 14.8% on average

  • Still, the market (or at least the ASX) has seen plenty of episodes where volatility and distribution picks up, and we then proceed to give back all of our recent gains in just a couple of sessions

  • Sentiment has also been rather stretched (e.g. Investors Intelligence reported Bulls at 57.1%, just below the Nov-2021 peak, CNN Fear and Greed Index was in Extreme Greed Territory, VIX had a prolonged stretch around 14)

So let's see how the dust settles over the next couple of sessions.

Hans' Charts of the Week

We are in the lull period between central bank mayhem and the earnings deluge. With this in mind, I thought I'd bring back my Charts of the Week. This week, the theme is the impact of Japan. Specifically, the Bank of Japan and how its surprise from last week has given markets another leg up. While you think it might be boring or not matter to Australian investors, please just stick with me on this one.

Japan's stock market is one of the best-performing so far in the developed world this year. And the Japanese Yen is a massive force among currency traders and anyone who is invested in an export-dependent business (through the Trade-Weighted Index).

First - a little background. Last Friday, the Bank of Japan decided to shock the world (including this writer who has since been humbled) by making "pre-emptive" adjustments to its famous yield curve control policy. Yield curve control is when a central bank targets a specific longer term interest rate by buying or selling as many bonds as possible in order to keep that interest rate there. The RBA implemented this policy throughout the COVID-19 pandemic while Japan has had it since well before the pandemic.

But last week, after years of having a concrete 0.5% upper-limit, it said that it would allow a gradual rise to 1% over time. But when you play with fire, expect sparks to fly. The Japanese stock market sank while volatility surged in the bond market.

Source: Endeavour Equity

The reason Japan has run this unconventional form of monetary policy for so long is that inflation has remained very low for a long time - almost deflationary. Between 2015 and 2022, the Japanese inflation rate never (yes, never) breached 2%. So it seems that after 10 years, easy money has finally flowed through to the Japanese economy.

Screenshot 2023-08-02 at 10.21.05 am
Source: TradingEconomics

The moves from the Bank of Japan are a sign that the beleaguered economy is finally making some headway. That, along with some evidence from corporate earnings, has caused foreign investors to rush into stocks like a pack of hyenas. In fact, the Nikkei 225 is at 33-year highs and is still considered cheap compared to its global counterparts. Warren Buffett buying up stock in Japanese trading houses has only strengthened this argument.

Source: Schroders

But a word of caution. Before you think about buying Japanese shares or ASX-listed ETFs with exposure to the Japanese market (ASX: IJP and ASX: HJPN are two major ones), you may want to know about what happened the last time Japanese stocks rallied this hard. In 1990, Japanese stocks were trading at incredible highs thanks to easy access to credit and a booming economy. The Bank of Japan was forced to raise interest rates to cool the asset bubble developing in real estate and stocks. What followed was a long period of slow to negative economic growth. It's called the "lost decade" and it's during this time that China built itself up to become the defining force in Asia over the 2000s and 2010s. That's just something to consider in case you're thinking of chasing this rally which (still) looks and sounds cheap.

Key Events

ASX corporate actions occurring today:

  • Trading ex-div: CVC (CVC) – $0.05, Nickel Industries (NIC) – $0.02, Qualitas Real Estate Income Fund (QRI) – $0.012

  • Dividends paid: Arena REIT (ARF) – $0.042 

  • Listing: None

Economic calendar (AEST):

  • 11:30 am: Australia Balance of Trade

  • 4:00 pm: Germany Balance of Trade

  • 9:00 pm: UK Interest Rate Decision

  • 12:00 am: US ISM Services PMI 

Written By

Hans Lee

Senior Editor

Hans is one of the Senior Editors at Livewire Markets and Market Index. He created Signal or Noise and leads the team's coverage of the global economy and fixed income markets.

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