Moody's downgrades US banks - Sequoia Direct Pty Ltd

Moody’s downgrades US banks

Stocks retreated Tuesday as an August selloff was reignited by a downgrade of the banking sector by credit rating agency Moody's.

The Dow Jones Industrial Average was down 158.64 points, or 0.45 per cent, to close at 35,314.49. At session lows, the index dropped about 465 points. The S&P 500 dipped 0.42 per cent to end at 4,499.38, bringing the broad index's month-to-date loss to almost 2 per cent. The Nasdaq Composite pulled back by 0.79 per cent to 13,884.32, pulling its loss in August down to 3.2 per cent.

Tuesday was the fifth negative day out of six sessions for both the S&P 500 and the Nasdaq. At session lows, both were down more than 1 per cent. Though all three indexes closed off their lowest respective points in the session, none ever broke into positive territory.

Banks fell broadly after Moody’s downgraded the credit rating on several regional banks, including M&T Bank and Pinnacle Financial, citing deposit risk, a potential recession and struggling commercial real estate portfolios. The credit agency also placed Bank of N.Y. Mellon and State Street on review for a downgrade.

Goldman Sachs and JPMorgan Chase slid around 2.1 per cent and 0.6 per cent, respectively, while the SPDR S&P Bank ETF (KBE) dropped 1.3 per cent.

The SPDR S&P Regional Banking ETF (KRE) also lost 1.3 per cent. The regional bank ETF lost 28 per cent in March amid the failure of Silicon Valley Bank. Meanwhile, M&T Bank finished nearly 1.5 per cent lower.

Traders also parsed through the latest batch of earnings. UPS shares slipped 0.9 per cent after the delivery giant reported weaker-than-expected revenue for the second quarter. The company also lowered its full-year revenue outlook.

The corporate earnings season has so far been better-than-anticipated. With 89 per cent of S&P 500 stocks done reporting quarterly results, about four-fifths of them have beaten Wall Street’s expectations, according to FactSet. But it appears a lot of those results were already priced into the market, given the pullback the last two weeks.

Moving away from corporate earnings, Google and Universal Music are discussing licensing agreements to use artists' melodies and voices in AI-generated songs, aiming to address the challenges posed by generative AI and "deepfake" songs that imitate established artists' voices and sounds without permission.

Turning to commodities, Swiss mining behemoth Glencore, saw a 50 per cent drop in profits to $9.4 billion in the first half of the year due to lower commodity prices after the Ukraine invasion, despite revenues of $107 billion.

The Ghana government's approved green minerals policy for lithium, aims to guide its responsible exploitation and production, set to be passed by parliament soon, ensuring maximum benefits from resources amid global clean energy mineral demand.

However on the Ghana front, Atlantic lithium is expected to be subject to a 5pc royalty to the government of Ghana. There is suspicion that the government could be considering rates of up to 10pc. Precedent exists, albeit elsewhere and in other commodities, e.g. diamonds in Zimbabwe, cobalt in the Democratic Republic of Congo (DRC).

Overall, US sectors closed mostly lower overnight. Health was the leader of the pack, whilst Materials was the worst performer.

Futures

The SPI futures are pointing to a 0.1 per cent fall

Currency

One Australian dollar at 7:20 AM was buying 65.41 US cents.

Commodities

Gold lost 0.51 per cent. Silver dropped 1.83 per cent. Copper fell 1.79 per cent. Oil gained 1.20 per cent.

Figures around the globe

European markets closed lower. London’s FTSE fell 0.36 per cent, Frankfurt lost 1.10 per cent, and Paris closed 0.69 per cent lower.

Turning to Asian markets, Tokyo’s Nikkei added 0.38 per cent, Hong Kong’s Hang Seng fell 1.81 per cent while China’s Shanghai Composite closed 0.25 per cent lower.

The Australian sharemarket closed 0.03 per cent higher at 7311

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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