Global Markets React to US Debt Concerns

Emerging markets are gaining attention as a potential "next bull market" due to dwindling confidence in US assets. The Bank of America and JPMorgan have expressed bullishness towards emerging markets, citing factors such as a weaker US dollar, China's economic recovery, and attractive valuations. The MSCI Emerging Markets Index has outperformed the S&P 500 year-to-date, rising 8.55% compared to the S&P's 1% gain. Analysts believe that emerging markets are poised for outperformance due to their discounted valuations, low investor positioning, and structural progress in key markets such as India. Some experts see the current optimism as potentially marking the start of a new rotation in investor sentiment, driven by a desire for diversification and long-term returns.

Asia-Pacific markets fell on Thursday, tracking declines on Wall Street as investor sentiment soured on fears that a new U.S. budget bill could substantially add to the country's debt. Japan's Nikkei 225 and Topix, South Korea's Kospi and Kosdaq, Australia's S&P/ASX 200, Hong Kong's Hang Seng index, and mainland China's CSI 300 all declined. Investors awaited the unveiling of New Zealand's 2025 budget. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all closed lower on Wednesday, with the Dow falling 1.91%. The 30-year Treasury bond yield touched its highest level since October 2023.

U.S. markets plummeted on worries over the country's deteriorating fiscal health, with the S&P 500, Dow Jones, and Nasdaq Composite falling 1.61%, 1.91%, and 1.41% respectively. Concerns over President Donald Trump's tax bill potentially adding $3 trillion to $5 trillion to the U.S. debt sparked a sell-off, with Treasury yields spiking to their highest levels in months. The 30-year Treasury bond yield crossed the 5% level, and the 10-year yield traded at 4.61%. Meanwhile, Bitcoin hit a new high of $109,857, and OpenAI acquired Jony Ive's AI startup io for $6.4 billion. Emerging markets are gaining attention as the "sell U.S." narrative gains momentum following Moody's U.S. credit rating downgrade.

European markets are expected to open lower on Thursday, with London's FTSE, Germany's DAX, France's CAC 40, and Italy's FTSE MIB all projected to decline. The negative sentiment follows a sizable sell-off on Wall Street on Wednesday, driven by concerns over the U.S.' deepening budget deficit, which led to a sharp spike in Treasury yields. Several major companies, including EasyJet, BT, British Land, and Tate and Lyle, are set to release earnings reports on Thursday, and preliminary purchasing managers' index data will be released for France and the U.K.

US stock futures were flat in overnight trading after a significant sell-off on Wall Street, driven by concerns over a growing US budget deficit. The Dow Jones Industrial Average slid over 800 points, while the S&P 500 finished 1.6% lower. Treasury yields spiked, with the 30-year bond yield hitting 5.09%, its highest level since October 2023. Investors are now awaiting weekly jobless claims data for insights into the labor market. In after-hours trading, shares of Lumen Technologies, Snowflake, and Urban Outfitters surged following positive news and earnings reports.