NASDAQ Dips: Fitch Rating Surprise Shocks US Markets

US equities significantly decline along with the Dollar decline as Fitch lowers the US’s creditworthiness. As a result, the three US indices continue to decline during this morning’s Asian session, with the NASDAQ experiencing the strongest deduction. Economists advise that the price action indicates an apparent risk aversion ahead of today’s European cash equities open. Fitch is one of the world’s three most followed credit rating agencies, which has given the US a rating of AAA. However, the agency surprisingly lowered the US rating to AA+. Therefore, the US is now at a “very low risk of default” rather than “the lowest risk of default”. 

Fitch said it had noted a “steady deterioration” in governance over the last 20 years. In addition to this, a significantly higher level of debt. However, Janet Yellen is advising the decision is being made due to data from the COVID-19 period and before 2020. The Treasury Secretary added the decision is outdated and that even though the US has a higher level of debt, the country is also experiencing higher Gross Domestic Product. Undoubtedly, the announcement has little physical effect on the financial trading market, as most investors still deem the US as “low-risk”. However, it significantly lowers investor sentiment, affecting the Dollar and US stocks. 

The Dow Jones was the only equity-based index showing resilience during yesterday’s US session. The Dow Jones ended the day 0.21% higher, while competitors experienced a decline. This was mainly due to specific earnings reports, which saw higher buy orders for particular stocks. For example, Caterpillar, which bears the sixth-highest weight, rose by 8.85%. This was due to the company’s earnings reading 20% higher than expectations and revenue 4% higher. However, traders should note the stock has declined by 0.50% after trading hours due to the lower risk appetite. Merck and Co’s earnings also read higher than previously expected. 

NASDAQ Dips Ahead of Significant Earnings Data

The price of the NASDAQ over the past 24 hours is trading at 1.11% lower. Furthermore, according to analysts, the decline could have been more substantial if it wasn't for positive earnings from AMD. Advanced Micro Devices rose by 5.61% as the company’s earnings read 1% higher than expectations. Nonetheless, the NASDAQ still declined as 16 of the top 20 most influential stocks within the NASDAQ declined. Tesla experienced the most substantial decline, declining by 3.26%.

The index is also pressured by the upcoming quarterly earnings report from Apple, the most influential NASDAQ stock alongside Microsoft and Amazon. According to Refinitiv, the company will likely experience the most significant Apple iPhone sales drop in seven years. According to analysts, the company is likely to see a substantial rise in revenue but a decline in earnings per share. The Earnings Per Share is expected to read $1.19, which is $0.24 lower than the previous quarter. However, some economists are advising that the stock is still possibly experiencing bullish price movement if the company’s guidance is positive. 

When monitoring order flows during the previous trading session, Apple stocks potentially point towards a decline. When looking at Delta statistics and Cumulative Delta, sell orders outnumbered buy orders most of the day. However, traders should note that the picture may change after Apple earnings data, which will be released tomorrow after market close. If Apple declines over the next three days, the NASDAQ will likely experience more decisive bearish price action. In the meantime, traders will monitor Qualcomm and PayPal’s earnings report, which is scheduled for today after market close. Qualcomm will be the more influential release due to the company's weight within the index. 

NASDAQ on a 3-Hour Chart on August 2nd, 2023

Price action is pointing towards a downward trend toward the previous support level at $15,403. For longer-term signals that the index is likely to decline, traders will evaluate a breakout of $15,403.

EUR/USD - Fitch Strips US of Top Tier Credit Rating

The US Dollar saw a significant decline towards the end of yesterday’s trading session after poor economic data and the Fitch downgrade. However, the price of the US Dollar is again increasing during this morning’s European session. This morning, the US Dollar Index is 0.11% higher but remains resistant at 102.00. The 102.00 can be a support level when evaluating the longer-term price action. Therefore, investors will monitor if the price breaks above this level, which may trigger a continuation of the bullish trend. 

Economic data continue to point towards a slow economy in the US, but not to the extent of their European counterparts. The ISM Manufacturing Index read 46.4, higher than the previous month but lower than expectations. The ISM Manufacturing Price Index, as did the JOLTS Job Openings, also read lower. Today, investors will be focusing on the ADP Non-Farm Employment Change. A higher-than-expected figure can support the US Dollar. Conversely, the Euro is declining against most competitors during this morning’s trading hours. 

EUR/USD 30-Minute Chart on August 2nd, 2023

Summary:

• Fitch Ratings lowers the US’s creditworthiness to AA+, meaning the US is now at a “very low risk of default”.
• US and European stocks decline due to the downgrade by Fitch and low investor sentiment. 
• According to Refinitiv, the company will likely experience the most significant Apple iPhone sales drop in seven years. Apple stock Delta statistics, and Cumulative Delta, show sell orders outnumbering buy orders.
• Economic data point towards a slow economy, but not to the extent of their European counterparts.