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The yen is slumping and US equity futures have dropped 0.4% from session highs after S&P downgraded Japan’s credit rating.
The rating agency’s move has revived sovereign debt fears that had abated of late after several successful bond auctions in the eurozone.
The news has hit a raw nerve in the market because it reminds investors that fiscal difficulties are not restricted to relatively small nations such as Greece and Ireland, but are a big problem for many developed economies.
Indeed, on Wednesday it was estimated that the US budget deficit would hit nearly $1,500bn in 2011, more than originally forecast.
Sentiment was also supposed to be supported by confirmation overnight from the US Federal Reserve that it would continue with its controversial $600bn bond purchase programme to support the economy, though it only slightly upgraded its growth outlook.
However, even before the S&P report it was evident that risk asset gains were likely to be limited for much of the global session as traders waited to see if Wall Street can decisively push above some round numbers on benchmark gauges that are so beloved of market watchers.
The Dow Jones Industrial Average briefly broke above 12,000 on Wednesday – the first time since June 2008 – but closed at 11,985, while the S&P 500 sits less than 4 points shy of 1,300.
Failure to breach these, albeit arbitrary, ceilings may encourage the bears to trot out the familiar mantra that the market is losing impetus and is ripe for a correction.
It’s one of the biggest reporting days for US companies as the likes of Microsoft, Procter & Gamble, Amazon and Caterpillar step up to the plate.
It’s also a busy day for economic data. US, December durable goods orders and weekly initial jobless claims will be released at 1330. Last month’s pending home sales numbers will be published at 1500.
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