In morning trade, Japan’s benchmark Nikkei 225 fell 0.2% to 32,323.31. The S&P/ASX 200 in Australia was almost unchanged, rising by less than 0.1% to 7,316.60. The Kospi in South Korea rose roughly 1.0% to 2,598.96. The Hang Seng in Hong Kong fell 0.4% to 19,105.19, while the Shanghai Composite fell 0.4% to 3,247.64.
Clifford Bennett, chief economist at ACY Securities, described the Chinese export figures as “rather alarming,” saying that it was the largest decrease in three years and represented the global economy, not just China.
“Global demand is falling precipitously,” he explained.
“We are now very likely to be surprised by how severe this global economic slowdown becomes.” The world’s three largest economies — the United States, China, and the European Union — are driving the downward trend.”
On Wall Street, the S&P 500 plummeted 19.06 points, or 0.4%, to 4,499.38, and was nearly three points worse at one point. It was the index’s sixth fall in the last six days after it soared during the first seven months of the year.
The Dow Jones Industrial Average slid 158.64 points, or 0.4%, to 35,314.49 after paring a 465-point fall. The Nasdaq Composite Index fell 110.07 points, or 0.8%, to 13,884.32.
Bank stocks in the United States plummeted after Moody’s downgraded the credit ratings of ten smaller and midsized banks. It cited a number of financial worries, ranging from the effects of increasing interest rates to the work-from-home trend that is leaving office buildings idle.
In order to slow inflation, the Federal Reserve raised its key interest rate to its highest level in more than two decades. High interest rates work by simply slowing the entire economy, raising the chance of a recession.
Banks have been particularly heavily hit by the significantly higher rates.
While downgrading credit ratings for ten banks and reviewing six others, Moody’s said the quick rise in rates has created conditions that have harmed the overall industry’s revenues.
Higher interest rates also reduce the value of bank investments made while interest rates were extremely low. Such circumstances contributed to three high-profile bank collapses in the United States this spring, which damaged faith in the system.
Moody’s also predicted difficulty for banks with a large portfolio of commercial real estate loans, which are under threat as work-from-home trends keep workers away from workplaces.
“This comes as a mild US recession is on the horizon for early 2024, and asset quality looks set to decline from solid but unsustainable levels,” wrote Moody’s Jill Cetina and Ana Arsov in a research.
One of the banks whose credit ratings were reduced was M&T Bank, which declined 1.5%. Northern Trust, one of the institutions under examination by Moody’s for a possible rating, declined 1.6%.
Other, larger banks with unaffected credit ratings also fell. Bank of America fell 1.9%.
The US government will issue consumer and wholesale inflation figures later this week, which could impact what the Federal Reserve does next with interest rates.
On Wall Street, the belief is that the drop in inflation since it surpassed 9% last summer will persuade the Fed that no further rate hikes are required. Economists anticipate that consumer prices grew 3.3% year on year in July, accelerating from June’s 3% inflation rate.
However, several economists and investors believe that the final push to the Fed’s 2% target will be the most challenging. They argue that Wall Street was too fast to believe in a “soft landing” for the economy, and that the S&P 500’s 19.5% gain during the first seven months of this year was exaggerated.
In the bond market, the 10-year Treasury yield dipped to 4.02% from 4.10% late Monday. It contributes to the determination of mortgage and other lending rates.
The two-year Treasury yield, which more closely matches Fed predictions, fell from 4.79% to 4.75%.
In the oil market, benchmark US crude fell 13 cents to $82.79 a barrel. Brent crude, the worldwide benchmark, dropped 9 cents to $86.08 a barrel.
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