After strong gains to end last week, Monday’s session was clearly weaker for stock markets as the euphoria surrounding the US debt ceiling deal faded and investors looked ahead at the potential for another interest rate hike in the US, possibly even as early as next week. Australia’s central bank became the next central bank to surprise with continued hikes on Tuesday, increasing rates again and catching many traders off guard.
In New York, the broader stock market indices were down on Monday. The Dow Jones Industrial lost 0.59% to finish the day at 33,562.86 points and the S&P 500 fell 0.2%, closing at 4'273.79 points. The tech-heavy Nasdaq 100 ended marginally higher. Apple’s stock price fell by 0.76% after the company announced the release of its new virtual reality goggles at its developer conference in California. The heavy price tag at 3,500 US dollars may be one reason traders were sceptical.
Australia’s central bank set the tone for further interest rate hikes by the world’s major central banks when it surprised many traders by increasing its benchmark interest rate by 25 basis points to 4.1%. Market participants had largely expected the RBA to keep rates unchanged. As a result, the Australian stock index S&P/ASX 200 fell by around 1%, while the Australian dollar strengthened versus the US dollar.
Other stock markets in the Asia-Pacific region were more mixed Tuesday. In mainland China, the Shanghai Composite was trading in slightly negative territory and the Shenzhen Component slipped about 0.5%. Hong Kong's Hang Seng Index managed to gain about 0.7%. In Tokyo, the Nikkei 225 continued to forge ahead after breaking a multi-decade high a day earlier. The index was up around 0.7% on Tuesday. South Korea’s Kospi was also trading up about 0.5%.
In Switzerland, the inflation rate fell for the third month in a row after spiking again at the start of the year and is now approaching the 2%-level targeted by the Swiss National Bank (SNB). Switzerland’s Consumer Price Index (CPI) increased by 0.3% in May when compared with the previous month. Prices were up 2.2% when compared with prices the same month a year ago. That puts inflation at a much lower level that in neighbouring European Union countries and close to the SNB's target. The main drivers for price increases were rent, vacation and food prices. Switzerland’s SMI stock index finished the day down 0.25%.
Corporate news in focus: British American Tobacco Q2 revenue (08:00 CET).
Economic data in focus: German industrial orders (08:00 CET), eurozone retail sales (11:00), weekly US API oil report (22:30).
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
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