Despite the lack of economic fundamentals on Monday, yet markets moved strongly, where China decided on Sunday to increase banks’ reserve requirements for the fourth time this year to control rising inflation risks, while the S&P dropped a bombshell after announcing a downgrade to the outlook of U.S. debt.
Standard & Poor’s downgraded on Monday the outlook for the United States debt to “negative” from “stable”, highlighting the risk that policymakers will fail to reach an agreement on how to reduce the country’s fiscal problems. The S&P also said there’s a one-in-three possibility it could lower the long-term rating for U.S. debt within two years. The S&P meanwhile maintained the AAA rating for the United States.
Meanwhile, China continues to tighten its monetary policy in order to tame inflation, where China had raised benchmark interest rates four times since November, while Sunday’s decision to increase the reserve requirements comes as the latest effort by the People Bank of China to control price pressure, while many fear that this will slowdown economic growth in China.
Stock markets dropped heavily on Monday all around the globe, where U.S. stock indexes opened sharply lower with the Dow Jones Industrial Average dropping more than 200 points to trade around 12,100, while the S&P 500 index fell nearly 1.50 percent to trade around 1,300. European stock indexes were also sharply lower before closing, where FTSE 100, CAC, and DAX were all down more than 2 percent.
The U.S. dollar rose against most major currencies, where investors shunned risky assets and headed for lower yielding assets including the Dollar and the Yen, while gold prices dropped due to the dollar’s strength after rising amid the downgrade news to a new all-time record high at $1497.04 an ounce, while crude oil prices also dropped amid concerns over the outlook for global demand, where crude oil was trading around $107 a barrel.
Originally posted here
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