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European stock futures slip after U.S. downgrade; risk sentiment hit

Published 02/08/2023, 04:10 pm
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Investing.com - European stock markets are expected to open lower Wednesday on concerns about slowing growth, while risk sentiment has also been hit by the surprise downgrade to the U.S.’s top-tier sovereign rating by Fitch.

At 02:00 ET (06:00 GMT), the DAX futures contract in Germany traded 1% lower, CAC 40 futures in France dropped 0.8% and the FTSE 100 futures contract in the U.K. fell 0.5%.

Fitch downgrades U.S. credit rating

Fitch downgraded the United States to AA+ from AAA late Tuesday, citing likely fiscal deterioration over the next three years and repeated down-to-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.

The rating agency had first mentioned the possibility of a downgrade in May, but this announcement came as something of a surprise given it maintained its rating in June after the U.S. debt ceiling crisis was resolved.

This decision brought a sharp response from the U.S. government, with Treasury Secretary Janet Yellen calling it "arbitrary and based on outdated data."

The long term impact of this decision is debatable, but over the short term U.S. bond yields fell as investors, somewhat ironically, sought the safety of U.S. sovereign debt, while equities retreated in Asia, and are likely to do the same in Europe.

Eurozone manufacturing activity weakens

Confidence in European markets had already been hit by the release Tuesday of disappointing manufacturing activity data, suggesting the eurozone economy was set for a bumpy ride in the second half of the year.

The final eurozone manufacturing Purchasing Managers' Index fell to 42.7 in July from June's 43.4, its lowest since May 2020, suggesting this sector remains in recession.

The economic data slate is largely empty in Europe Wednesday, but investors may also be keeping an eye on the political turmoil in the U.S., with former President Donald Trump charged late Tuesday with conspiracy to defraud the U.S. and other crimes related to his efforts to overturn his 2020 presidential election loss.

Siemens Healthineers reports drop in quarterly profit

Back in Europe, medical device maker Siemens Healthineers (ETR:SHLG) reported a drop in quarterly operating profit and free cash flow due to the tailing-off of its rapid COVID-19 antigen test business.

Quarterly results are also expected from the likes of consumer healthcare company Haleon (LON:HLN) and aerospace firm BAE Systems (LON:BAES).

Crude prices rise after record U.S. inventories draw

Oil prices rose Wednesday, near to their highest levels since April, after industry data pointed to a hefty fall in U.S. inventories, indicating robust demand from the world's biggest fuel consumer.

Data from the American Petroleum Institute, released on Tuesday, showed that U.S. crude inventories shrank by 15.4 million barrels in the week to July 28, the largest draw seen in data stretching back to 1982.

Official data, from the Energy Information Administration, are due later in this session, for confirmation.

By 02:00 ET, the U.S. crude traded 1% higher at $82.22 a barrel, while the Brent contract climbed 1% to $85.77. 

Additionally, gold futures rose 0.4% to $1,985.70/oz, while EUR/USD traded 0.1% higher at 1.0994.

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