Market 11/13: Concerns over public debt return after Moody's downgrades US credit rating

Moody’s lowers US credit rating outlook to negative

Main reasons why Moody’s Investor Service lowers rating outlook to Aaa:

• Risk of decline in financial strength, especially political polarization preventing fiscal agreements.

• Projected budget deficit remains very high.

• Debt repayment capacity significantly weakened.

Long-term bond yields hit highest in 16 years in October, main factor contributing to increased public debt stress and fiscal budget deficit.

• Deficit in the latest fiscal year nearly doubled to 2000 billion USD.

  

• US 2023 deficit reached -1.7 trillion USD, additional -300 billion USD deficit compared to last year. Spending now accounts for 44% GDP, equal to World War II.

Value of CDS contracts increased about +60% since June, raising concerns of a recurring debt ceiling crisis.

This information caused stocks to drop on Monday morning.

Consumer spending down in October. Household savings gradually depleted

According to CNBC/NRF Retail Monitor, retail sales excluding autos and gas down -0.08%. Core retail sales index (excluding restaurants), also down -0.03%.

Previously, excess savings rate after inflation adjustment has gradually depleted.

Some people have started using retirement savings to cope with financial difficulties.

• Number of people withdrawing emergency funds from 401(k) accounts increases +13% compared to previous quarter.

UK: Economy likely to face recession

According to Bloomberg Economics, 52% chance UK will fall into recession due to sharp interest rate hikes and rising unemployment, forcing households to cut spending.

GDP forecast to drop 0.1% in three months to September. BOE expects unemployment rate to rise from 4.3% to 5.1% by 2026.

China: Capital injection plan for enterprises and easing geopolitical tensions

• China proposes capital injection plan for state-owned enterprises, including sectors like public services, infrastructure, and emerging industries.

• On 11/15, President Joe Biden and Xi Jinping will meet to reduce tensions between the two countries, especially as Taiwan becomes a sensitive issue.

  • Read more about alarming crises in China: here.

• Biden expected to push for re-establishing military relations with China. This news caused Boeing shares to rise over 4% on new orders and hopes from this Asian market.

Events this week:

1. Consumer Price Index CPI - Tuesday.

2. Producer Price Index PPI - Wednesday.

3. Retail Sales - Wednesday.

4. Philadelphia Federal Reserve Manufacturing data - Thursday.

5. Building Permits data - Friday.

6. 14 speeches from Fed officials.

Earnings report schedule for some companies this week:

Other news:

• Project management company Monday.com shares up 7% pre-market on strong Q3 report.

• WeWork crisis leaves 20% of US office rental space vacant. Commercial real estate crisis is worsening.

• Brent oil price falls for three consecutive weeks below 81 USD/barrel due to concerns about global demand and the risk premium in the Israel-Hamas war has also decreased.

• Japanese investors are dumping US corporate bonds at the fastest rate in history.

• The Japanese Yen is approaching its lowest level in 33 years against the USD.

• Only 14% of voters believe Joe Biden has improved the economy and brought benefits to their lives (according to Financial Times survey).

• Exxon aims to become the leading lithium producer for electric vehicles.

• CBOE will begin margin trading of Bitcoin and Ether futures contracts from 2024/01/11.

  • Therefore, CBOE will become the first regulated US crypto exchange to allow trading of derivatives in both forms: spot trading and leveraged trading.