For those wondering what happens when the US credit rating is downgraded, markets provided a clear response. The dollar weakened, US treasury prices dropped, and gold prices surged. Wall Street tumbled on Wednesday, and Asian markets opened lower the next morning. Meanwhile, cryptocurrency values shot up, and crude oil prices edged down.
There is growing market optimism that the rating downgrade will lead to a shift of funds from US assets to emerging markets like India.
In the derivatives market, GIFT Nifty closed at 24,762.50 on Wednesday night and rose to 24,787 by Thursday morning. This hints at a subdued or negative opening for Indian markets.
European markets ended mixed on Wednesday. UK-based JD Sports saw its stock plunge 10% following a sharp decline in profit.
A US treasury auction saw limited investor interest. Concerns over increasing fiscal deficits and ballooning national debt are pushing investors away from US assets. Bank of America noted that the trend of “Sell America, Buy Emerging Markets” is gaining momentum. Their report even suggests that the next bull run could emerge from developing economies.
The US budget, which former President Donald Trump once called “beautiful”, has not inspired market confidence. It lacks concrete spending cuts and, if implemented, could worsen the US fiscal deficit. A higher deficit means higher returns must be offered on treasury bonds, potentially raising interest rates and living costs across the country.
Asian markets opened in the red. Japan’s Nikkei index dropped by 1%, and other markets including Australia, South Korea, Hong Kong, and Shanghai also started trading in negative territory.
Despite global jitters, the Indian stock market ended Wednesday with moderate gains. Optimism is driven by the belief that foreign investors pulling out from the US and other developed markets may redirect funds into Indian equities. On Tuesday, foreign institutional investors, typically net sellers, turned net buyers.
The Nifty rose 129.55 points (0.52%) to close at 24,813.45. The Sensex gained 410.19 points (0.51%) and settled at 81,596.63. Bank Nifty climbed 197.75 points (0.36%) to 55,075.10. The Nifty Midcap 100 jumped 436.95 points (0.78%) to end at 56,619.60, and the Nifty Smallcap 100 rose 65.60 points (0.38%) to 17,548.60.
Market breadth was positive. On the BSE, 2,242 stocks advanced while 1,746 declined. At NSE, 1,753 shares gained, whereas 1,095 ended lower.
Fifty NSE stocks touched 52-week highs, while 17 hit their yearly lows. Seventy-five stocks hit upper circuits and 65 reached lower circuit limits.
Foreign investors were net sellers in the cash market, offloading stocks worth ₹2,201.79 crore. Domestic institutional investors bought shares worth ₹683.77 crore.
While the Nifty closed above 24,800, market experts warn that selling pressure hasn’t subsided. If the critical 24,500 support level is breached, further declines are possible. For Thursday’s session, key support is expected at 24,720 and 24,650, while resistance could be faced at 24,910 and 26,980.
The downgrade of the US credit rating has led to a fall in the dollar index and treasury prices — both factors that usually boost gold demand. On Wednesday, gold rose by $23.30 to settle at $3,315.50 per ounce. By Thursday morning, it had climbed further to $3,338.
In Kerala, the price of gold surged by ₹1,760 per sovereign to reach ₹71,440. Prices may rise again.
Silver traded at $33.65 per ounce.
The dollar index fell to 99.56 on Wednesday and hovered at 99.58 on Thursday morning.
The euro strengthened to $1.1329 and the pound to $1.3421. The Japanese yen appreciated to 143.48 yen per dollar.
US treasury yields continued to climb. The 10-year yield reached 4.601%, and the 30-year yield stood at 5.09%.
The Indian rupee opened lower on Thursday but closed with a slight gain. The dollar dropped four paise to settle at ₹85.60.
China’s yuan rose to 7.20 per dollar.
