A Week In Review: Market Volatility And Credit Downgrades

In this edition of our weekly market review, we delve into the significant financial changes that occurred between July 31 and August 4, 2023. Our analysis spans from the East, with a close look at the Hong Kong market, to the West, examining the US market and its fixed-income sector: 

Hong Kong Market

Hong Kong stocks fluctuated rapidly last week, rising and falling for several consecutive days, and finally recorded a decline of nearly 2%. The trend structure changed from the previous shock upward pattern to a pressured pattern. Although the Political Bureau meeting has implemented a lot of substantive positive measures on the policy side, the market response is relatively light, and the pulse market has also increased. In addition, the recent high-level corrections in strong sectors such as automobiles, technology, and securities firms have further exacerbated the market’s repeated pressure. Looking forward to this week, the market will still face the test of acceptance. Without external stimulus, the structure of the index will have a direct impact on the market’s short-term trading and enthusiasm. If the index steadily starts the shock repair pattern, the market is likely to have a strong and weak structure.

US Market

The S&P 500 fluctuated higher in July 2023 and remained high at the end of the month, near the previous small high. Judging from the technical form of the monthly level, the EMA5 moving average has continued to rise since it crossed the EMA10 moving average, gradually approaching the previous high of 4787.10 ; The middle rail of the BOLL Bollinger Line is flat, and the index is also close to the upper rail position. In terms of sectors, in July, most of the S&P 500’s eleven major sectors closed up, of which the energy sector closed up 11.60%, the financial sector closed up 7.47%, the materials sector closed up 6.03%, and only the communications services sector closed down 4.35%. Different from the trend of technology giants driving the stock market to rise strongly in the first half of this year, the performance of Dow constituents in July exceeded the contribution of technology giants driving the stock market to rise. Mainly due to the lingering concerns about high inflation, rising interest rates and economic recession, the US economy has maintained its growth momentum since the first seven months of this year. It is expected that next week, the heavyweights in which the Dow is the head of the Dow, such as the industrial sector, may receive continued attention from funds.

Fixed Income Market

As the fiscal situation is expected to deteriorate in the next three years, and the government debt burden is high and growing, Fitch Ratings downgraded the US credit rating from AAA to AA +. Standard & Poor’s, one of the three major rating agencies, also lowered its credit rating for similar reasons. Currently, only Moody’s still gives the United States the highest credit rating. On the other hand, the US regional employment data continued to be stronger than expected last week. With the market expecting the Federal Reserve to continue its hawkish stance, the continued ebb of risk aversion has pushed down demand for long-term government bonds. Coincidentally, the US Treasury Department plans to increase the size of bond issuance under the pressure of deficits. In the case of oversupply, long-term US bonds are facing double bearishness on both sides of supply and demand, and the general decline is obvious. Among them, 30-year bonds have fallen the most, recording the worst weekly performance this year. In terms of term structure, long-term interest rates have generally risen this week, and the curve has become steeper in a bear market.

Author: Eddid Research

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