Article / 24 May 2017 at 7:00 GMT

Morning Markets: China has the Moody's blues

Consulting editor / TradingFloor




  • Germany: GfK consumer climate survey (0600 GMT)
  • Canada: Interest rate announcement (1400 GMT)
  • US: Existing home sales (1400 GMT)
  • US: EIA weekly petroleum status report, incl. crude oil and gasoline stocks (1430 GMT)

Asian markets were caught by surprise when Moody's downgraded China's credit rating to A1 from Aa3 due to expectations that the country’s financial strength will “erode somewhat” in coming years as debt rises, but it changed its outlook to stable from negative.

Chinese and Australian shares fell on the news of the China credit downgrade, but the reaction was relatively muted, and other Asia-Pacific markets were buoyed by overnight gains on Wall Street and firmer oil prices.

Iron-ore futures prices plunged, denting the Australian dollar.

Oil prices rose on a growing consensus that Opec-led production cuts will be extended at Opec's Thursday meeting.

Toshiba shares leapt more than 7% on reports that Western Digital would offer ¥2tn ($17.9 billion) for the Japanese group’s memory chip business.

Market signals

Asian session

  • UK's terror threat level has been raised from severe to critical 
  • Moody’s lowered China's rating to A1 from Aa3; its outlook changed to stable from negative
  • Chinese and Australian stocks dropped after the rating was announced
  • China's finance ministry said the downgrade was based on inappropriate methodology
  • Asian markets were mixed after China's downgrade
  • Investors are also waiting on minutes from the Fed and an Opec meeting
  • More dairy, wood, and wine exports in April for NZ led to a trade surplus of $NZ578 million
  • Australia's residential construction work carried out in Q1 fell at its fastest pace in 16 years
  • The yield on 10-year Treasury notes held at 2.28% in early trading
  • Chinese iron-ore futures fell more than 5%; the steepest one-day drop in over two weeks

Forex ahead

  • Aussie dollar took a surprise hit after China's credit rating downgrade; trading at 0.745
  • Offshore yuan dipped after Moody’s downgrade, weakening 0.07% to 6.8850 
  • US dollar strengthened against a basket of rival currencies to trade at 97.401
  • USD edged higher against the yen for the second straight session to fetch 111.87

From the Floor

China downgrade. “The impact is going to be very limited in the market,” says Horchani. “The reaction has been very mild.”

AUD dented. “The Aussie is generally very sensitive to iron-ore prices, so I am surprised the selloff hasn’t been even larger,” says Hardy.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Germany seems to be more buoyant than ever, with consumer and business sentiment reaching new highs, says James Picerno.

Aussie battler
Whenever there's a small crack in China, the AUD gets a serious thump, which is what happened when Moody's cut China's financial rating, writes Saxo Capital Markets in Sydney.

China downgrade
Moody's gave a lesser vote of confidence on China's ability to repay its debt this morning, and  Chinese shares are likely to follow suit, says Saxo's team in Singapore.


 China's stocks were heading for their lowest since October as Moody's cut the country's sovereign credit rating for the first time in nearly 30 years. Photo: Shutterstock

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