Hong Kong/London
CNN
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Global stock markets fell on Wednesday after rating agency Fitch downgraded the US credit rating, citing “a steady deterioration in governance standards” and the US government’s mounting debt burden.
Japan’s leading Nikkei 225 (N225) index had its worst day of the year, down 2.3%, while Hong Kong’s Hang Seng (HSI) index ended down 2.5% after Fitch changed its rating for the US on Tuesday -Had reduced debt from AAA to AA+.
European stocks fared slightly better, but the region’s benchmark index, the Stoxx 600, fell 1.4% to its lowest level in two weeks as of 5:57 a.m. ET. Germany’s DAX (DAX) fell 1.4% and France’s CAC (CAC40) 40 fell 1.2%, while London’s FTSE 100 (UKX) also hit a two-week low, down 1.5%.
US stock futures fell. The S&P 500 index lost 0.8% premarket and the Nasdaq 1.2%. But US Treasury bond prices rose and fell a few percentage points to 4.03% of 10-year yields.
The credit rating downgrade came after US lawmakers negotiated a debt ceiling deal to the last minute earlier in the year, risking the country’s first default. At a meeting with Biden administration officials, Fitch officials also repeatedly stressed that the Jan. 6 uprising poses a major problem in relation to the US government, a person familiar with the matter told CNN.
“The US credit rating downgrade reflects expected deterioration in public finances over the next three years, high and growing government debt burdens, and governance erosion relative to ‘AA’ and ‘AAA’ rated peers over the past two years Decades.” has manifested itself in repeated rows over debt ceilings and short-term solutions,” Fitch said in a statement.
The agency expects America’s general government deficit to rise to 6.3% of GDP in 2023 from 3.7% in 2022.
“Washington’s last-minute austerity measures are not the kind of measures highly valued by rating agencies, but the lack of movement in US Treasuries…suggests that the market has already largely quantified and gauged the damage done” , says Sophie Lund-Yates, senior equities analyst at Hargreaves Lansdown, said in a note.
China and Japan are the largest foreign investors in US government bonds. Together they own $2 trillion, which is more than a quarter of the $7.6 trillion in U.S. Treasury bonds held overseas.
Still, analysts at Goldman Sachs said on Wednesday they don’t think there are any significant government bondholders who will be forced to sell because of a downgrade.
“S&P downgraded the sovereign rating in 2011, and while this had a clearly negative impact on sentiment, there were no apparent forced sales at the time,” reads a research note.
“Because government bonds are such an important asset class, most investment rules and regulatory regimes refer specifically to them and not to AAA-rated government bonds,” Goldman Sachs analysts said.
— Elisabeth Buchwald contributed to this article.
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