- Fitch downgrades US Credit Rating to AA+
- US futures dip, FTSE rally hopes dissipate
- Consumer bellwether Starbucks misses sales expectations
- Taylor Wimpey completions and sales rates drop amid mortgage tension
- Oil price rises on supply fears
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
“The brush with a sovereign debt default earlier this year has seen Fitch Ratings cut the US debt rating, stripping it of its coveted triple A status. Fitch highlighted concerns over worsening fiscal conditions over the coming three years, but also brought questions of governance into the spotlight. The last-minute saves performed by Washington aren’t the kind of actions held in high esteem by rating agencies, but the lack of movement in US Treasury Bonds and the dollar index suggests the market has already largely quantified and assessed the damage done from recent fall outs. It’s true that this move by Fitch is somewhat based on outdated data, especially with the trajectory of inflation now in at a more favourable gradient.
The language used hasn’t stopped the stock market from reacting though, with at least a 0.2% dip in the futures contracts tied to the three major indicies. The market remains sensitive as the final throes of earnings season rumble on, but 82% of S&P 500 companies that have reported results so far have surprised to the upside, offering a bit of a sentiment buffer. With that in mind, the FTSE 100 may well follow in the footsteps of the US in Wednesday’s trading with muted to mildly negative outcomes possible.
Consumer bellwether Starbucks has missed analyst expectations in the third quarter, with same-store sales showing 10% growth which was under the 11% predicted. This reflected a disappointing miss in the important North American market, and is likely an indicator of waning consumer spending power.
Over in the UK, housebuilder Taylor Wimpey has followed recent trends and reported a 26% drop in completions and 21% fall in revenue. This comes as average sales rates have also depleted. The substantial challenges and apprehension surrounding buyers with mortgage affordability are having a tangible impact on the builders and Taylor Wimpey is no exception. Recent Nationwide data has shown that house prices have fallen at the fastest rate since the financial crisis, highlighting the extent of the pain. Taylor Wimpey’s pricing seems to be holding firm for now, but the scope of demand weakness will determine how long that’s the case. With the worst of the financial pain from higher interest rates yet to fully feed through to households, this will definitely be something to watch.
Brent crude oil is now up to $85 a barrel, reaching the highest level in over three months. A report has shown that US crude inventories have fallen by a lot more than expected, heaping pressure on supply expectations and squeezing the price upwards. A confirmation of the data is due later today, and if confirmed, would mark the biggest drop in US crude inventories in over 40 years.”
