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Equity markets down after Fitch cuts US credit rating

Rating agency Fitch downgraded the top credit rating of the US government on Tuesday. Equity markets reacted mostly negatively to the news while gold edged up and the US Dollar Index fell.

Shane Strowmatt, LGT
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5 minutes
US Capitol building with a storm
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Fitch cuts the US government’s rating to AA+ from AAA, its highest rating, due to concerns about the fiscal deficit in the coming years as well as further debt ceiling negotiations in the future. Fitch had already made the possibility of a downgrade public in May and said it would finish its review in the third quarter of the year. Fitch is now the second of the three major rating agencies to deny the US the best rating after Standard & Poor’s.

The downgrade’s effect on markets was blurred due to a series of economic data from the US on Tuesday. The US Labor Departments JOLTS report released Tuesday showed a total of 9.58 million jobs were open in the US economy during the month of June. That was down from 9.62 million openings in May. Both values are the lowest levels since early 2021. The US Manufacturing Purchasing Managers’ Index came in at 46.4, still below the level of 50, which indicates contraction. Following the Fitch downgrade and economic data, gold was trading about 0.3% higher early Wednesday, while the US Dollar Index and 10-year Treasury yields were down.

In New York, the major stock indices were mixed. The Dow Jones Industrial gained 0.2% to finish Tuesday’s session at 35,630.68 points while the S&P 500 lost 0.27%, ending at 4576.73 points. The Nasdaq-100 fell 0.25%, closing at 15,718.01 points.

In Asia, stock markets were trading clearly lower on Wednesday. Japan’s Nikkei 225 lost 2.4%. Hong Kong's Hang Seng Index was down 2.1% and the Shanghai Composite lost 0.9%. In South Korea, the Kospi dropped 1.9%.

Macroeconomic data out of Europe released at the start of the week painted the picture of a fragile eurozone economy. The eurozone economy grew by a meagre 0.3% during the second quarter when compared with the previous quarter. Inflation decelerated to 5.3% but was still much higher than the European Central Bank’s (ECB) target of 2%. Core inflation – which strips out volatile energy and food prices – remained unchanged at 5.5%. Last week, the ECB hiked interest rates for the ninth time in a row, brining its benchmark interest rate to 3.75% in an effort to fight inflation.

Corporate news in focus: Quarterly figures from Fresenius, Fresenius Medical Care, Kraft Heinz, Qualcomm, PayPal.

Economic data in focus: SECO Swiss consumer sentiment (09:00 CET), procure.ch Swiss Purchasing Managers’ Index (09:30), US ADP National Employment Report (14:15), weekly US EIA Petroleum Status Report (16:30).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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