A surprise credit downgrade for China weighed on the dollar and Australian resource stocks this morning, capping share market gains following a fourth straight rise on Wall Street.
At 1pm EST the ASX 200 was 11 points or 0.2% stronger at 5771 as support for industrials +1.3%, IT +0.9% and financials +0.1% offset declines in gold stocks -3.8%, utilities -1.1% and metals and mining -1%.
Hopes for stronger gains were dashed when Moody's cut China's credit rating from Aa3 to A1, citing concerns about elevated debt and the outlook for economic growth. The agency cut its outlook to 'Negative' from 'Stable'.
"The downgrade reflects Moody's expectation that China's financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows," Moody's said in a note quoted on Fairfax. "While ongoing progress on reforms is likely to transform the economy and financial system over time, it is not likely to prevent a further material rise in economy-wide debt, and the consequent increase in contingent liabilities for the government."
The dollar was last buying 74.64 US cents after being as high as 75.17 overnight. The Shanghai Composite was down 0.59%.
"The downgrade jolted markets and the Australian dollar again showed itself to be the preferred FX proxy for China's economy," Sean Callow, senior currency strategist at Westpac, told Fairfax. "The currency's fall is probably driven by fear Moody's could be right that China's heavy indebtedness threatens its medium-term growth prospects and thus demand for commodities."
Hong Kong's Hang Seng shed 0.04%, while Japan's Nikkei gained 0.48%. Dow futures were recently down 10 points or 0.05%.
Crude oil futures continued their bull run towards tomorrow night's OPEC meeting, rising another 14 cents or 0.27% this morning to US$51.61 a barrel. Gold futures declined $4.10 or 0.33% to US$1,251.40 an ounce.
Been a lot of negatives this week and very little reaction from the market. Terrorist attacks are depressingly common, but a few years ago a Chinese credit cut would have sent the ASX into freefall. I guess it's hardly unexpected, but still. Complacency? Trading: sliiiiiimmmm pickings, aside from CKA. I got a few AC8 at the low, but not enough to justify a day in front of the PC.
