Five things you need to know before the market opens on Wednesday August 2:
1. -- Stock Futures Slump As Markets React To Fitch Ratings U.S. Downgrade
Wall Street futures slumped lower Wednesday, while the Treasury bond prices moved higher and the dollar held steady against its global peers, as markets around the world reacted to a surprise U.S. debt downgrade by Fitch Ratings.
Fitch lowered its long-term U.S. debt rating by one notch, to AA+ from AAA, and issued a 'stable' outlook, noting that Congressional standoffs over the country's debt ceiling, "along with several economic shocks as well as tax cuts and new spending initiatives" will likely lead expanded deficits and a heavier debt-servicing burden.
The move sent ripples through the global financial markets, although investors largely fled to the safety of the very same Treasury bonds that were downgraded, underscoring their importance in the global financial system.
Benchmark 10-year Treasury bonds, which rose to around 4.04% during the Tuesday session in New York, were marked 2 basis points lower -- meaning prices were moving higher -- at 4.025% in overnight trading.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.13% lower at 102.183 while 2-year Treasuries were little-changed at 4.858%.
The Fitch decision was more evident in global stocks, however, with the MSCI ex-Japan index in Asia falling 2.05% into the close of trading and the Nikkei 225 slumping 2.3% to close at 32,707.69 points in Tokyo amid a risk-off overnight trading session in Asia.
In Europe, the region-wide Stoxx 600 slumped to a two-week low in early Frankfurt dealing and was last seen 1.23% lower on the session at 461.39 points. Britain's FTSE 100 fell 1.47% in London.
On Wall Street, investors will brace for an opening bell reaction to the Fitch decision, which comes oddly on the heels of a stronger-than-expected reading of second quarter economic growth and the Atlanta Fed's GDPNow forecast of a current-quarter growth rate of 3.5%.
Markets will also navigate ADP's National Employment report at 8:15 am Eastern time as they prepare for the Labor Department's July non-farm payroll report on Friday.
Heading into the start of the trading session, futures contracts tied to the S&P 500 are indicating a 38 point opening bell decline while those linked to the Dow Jones Industrial Average were priced for a 215 point pullback. Nasdaq futures were down 180 points..
2. -- Treasury Secretary Yellen Calls Fitch Downgrade 'Arbitrary'
Treasury Secretary Janet Yellen hit back at Fitch Ratings decision to lower the triple-A U.S. credit grade, saying she "strongly disagrees with the assessment, calling it "arbitrary and based on outdated data."
"Treasury securities remain the world's preeminent safe and liquid asset, and... the American economy is fundamentally strong," Yellen said in a statement.
Following a warning first published on May 24, Fitch Ratings cut its triple-A credit rating for U.S. debt late Tuesday, citing elevated government borrowing against a worsening fiscal backdrop, and forecasting a government deficit of 6.9% of GDP by 2025, compared to the 3.7% recorded in 2022.
Higher Fed interest rates, a weakening economy and stubborn inflation will compound these conditions, Fitch said.
"The government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process," Fitch said. "Additionally, there has been only limited progress in tackling medium-term challenges related to rising social security and Medicare costs due to an aging population"
Standard & Poor's first cut the U.S. triple-A credit rating in 2011, while Moody's Investors Service maintains its U.S. rating at Aaa, the highest grade possible.
3. -- AMD Shares Higher After Q2 Earnings Highlight AI Ramp
Advanced Micro Devices (AMD) -) shares moved higher in pre-market trading after it topped Wall Street forecasts for its second quarter earnings and touted the potential of its new AI chips.
CEO Lisa Su said AMD is working with "top-tier cloud providers, large enterprises and numerous leading AI companies" as it ramps up production of its MI300 accelerators, the chip it unveiled earlier this spring, adding that "our AI engagements increased by more than seven times in the quarter as multiple customers initiated or expanded programs supporting future deployments of Instinct accelerators at scale."
For the three months ending in June, AMD posted non-GAAP earnings of 57 cents per share, a penny ahead of Street forecasts, on revenues of $5.359 billion.
Looking into the current financial year, AMD said it sees first quarter revenue in the region of $5.7 billion, plus or minus $300 million, with gross margins of around 51%. Refinitv forecasts had the third quarter revenue forecast at $5.82 billion.
AMD shares were marked 0.56% higher in pre-market trading to indicate an opening bell price of $118.26 each
4. -- Starbucks Lower After Q3 Sales Miss Wall Street Forecasts
Starbucks (SBUX) -) shares slipped lower in pre-market trading after the world's biggest coffee chain posted record third quarter revenues that missed Wall Street forecasts.
Starbucks said non-GAAP earnings for the three months ending in June rose 19% from last year to $1.00 per share, topping the Street by 5 cents, but posted revenues of $9.2 billion that narrowly missed the Street's $9.29 billion forecast.
A notable recovery in China, were same-store sales rose 46% compared to last year's Covid-affected quarter, failed to offset muted gains in North America, where transaction volumes and overall sales were hit by rising prices menu changes.
Starbucks also narrowed the range of its full-year earnings forecast to between 16% and 17% of 2022 levels, with comparable sales rising at the higher-end of its 7% to 9% range.
Starbucks shares were marked 2% lower in pre-market trading to indicate an opening bell price of $99.25 each.
4. -- CVS Earnings On Deck Amid Healthcare Insurance Payout Concern
CVS Health (CVS) -) shares edged higher in pre-market trading ahead of the health insurance and retail pharma group's second quarter earnings prior to the opening bell.
Analysts expect CVS to post an adjusted bottom line of $2.12 per share, down 11.7% from the same period last year, on revenues of $86.45 billion.
Earlier this year, CVS trimmed its 2023 profit forecast by 20 cents, to between $8.50 to $8.70 per share linked to "acquisition-related transaction and integration costs, as it completes its $10.6 billion purchase of Oak Street Health and closed its $8 billion takeover of Signify Health.
CVS also reiterated its forecast for cash flows from its overall business to come in between $12.5 billion to $13.5 billion.
CVS shares were marked 0.05% higher in pre-market trading to indicate an opening bell price of $73.97 each.
