Chinese stocks plummeted more than 1 percent on Wednesday morning before rebounding slightly after the Moody's Investor Services downgraded China's debt ratings from A1 to Aa3, shaking the market that was already struggling with tighter regulation, rising borrowing costs and the threat of an economic slowdown. In the same release the ratings agency also downgraded its outlook for China from stable to negative.
"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 statement.
China's borrowing costs are likely to increase as a result of the downgrade but the country remains well within the investment-grade rating range, so the country shouldn't have trouble borrowing necessary funds. China's Shanghai composite fell more than 1 percent in reaction to the news before bouncing back to a 0.66 percent loss, while the offshore yuan slipped 0.1 percent. Hong Kong markets took the announcement in stride and remained stable on Wednesday, trading down a slight 0.11 percent.
All eyes are now on the Fed which will be releasing minutes from its last meeting later on Wednesday, an announcement traders expect to shine light on whether there will be another interest rate hike in June, as has been expected for some time. Traders are also watching the OPEC meeting scheduled for Thursday which will be led by Saudi Arabia. Oil prices were relatively stable on Wednesday after falling on Tuesday due to news that the United States is considering selling half of its stockpile. Brent crude was up 0.11 percent on Wednesday morning to $54.21 per barrel while U.S. WTI crude futures were up 0.1 percent to $51.52 per barrel. The OPEC meeting is expected to address the possibility of continued production cuts in the hopes of controlling prices further despite the increased production by the United States.