Financial market tumbled on Thursday as driven by poor economic data in China, the Eurozone and the US. Worse still, Moody's downgraded credit ratings of 15 large banks in the world. Wall Street slumped with the DJIA and S&P 500 losing -1.96% and -2.23% respectively. In the commodity sector, crude oil prices tumbled with the front-month contract for WTI crude oil plummeted to a new 8-month low of 77.93 before ending the day at 78.2, down -3.99%, while the equivalent Brent crude contract declined for a 4 consecutive day to as low as 88.9 before settling at 89.23, down -3.73%. Gold price was also hurt with the Comex contract slipping to a 2-week low of 1564.8 before closing at 1565.5, down -3.11%.
Moody's downgraded the credit ratings of 15 banks, including banking giants Morgan Stanley and Credit Suisse. Rating of Morgan Stanley was cut 2 notches to Baa1 while that for Credit Suisse was down by 3 notches to A2. Other banks that faced the downgrades included UBS, HSBC, Goldman Sachs, etc. According to the rating agency, all of the banks affected by today's actions have significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities.
US economic data released yesterday was disappointing, the Philly Fed index fell to -16.6 in June from -5.8 a month ago. The market had anticipated a reading of zero. Existing home sales surprisingly dropped to 4.55M in May from 4.62M. The market had anticipated a milder slip to 4.56M. The home price index climbed +0.8% m/m in April, easing from +1.8% gain in March. Leading indicators added +0.3% in May after a -0.1% contraction in April. China's flash manufacturing PMI dipped to 48.1 in June while May's data was revised lower to 48.4. This set of data suggested that manufacturing activities in the world's second largest economy have contracted for 8 consecutive months and more stimulus is probably needed. In the Eurozone, manufacturing activities deteriorated further as sovereign debt crisis in the periphery worsened and most countries were struggling with fiscal tightening. The manufacturing PMI slid -0.3 points to 44.8 in June. For Germany alone, the reading fell to 44.7 from 45.2 in May, compared with market expectations of 45.2. Modest improvements were seen in France with the index climbing higher to 45.3 in June from 44.7 in the prior month. The market had anticipated a drop to 44.5. In the UK, retail sales soared +3.0% y/y in May after contracting -0.3% in April. Excluding auto fuel, the regain rose +2.4% y/y, following a -1.1% drop in the prior month.
On the dataflow today, Germany's IFO business climate index probably slipped -1.3 points to 105.6 in June, the current assessment index fell -1.3 to 112 while the expectations index dropped -1.1 points to 99.8. In Canada, inflation should have continued to moderate. Headline CPI probably moderated to +1.5% in May from 2.0% in the prior month while the core CPI eased to +1.9% in May from +2.1% in April.