Global Stock Markets React to US Credit Downgrade

European and Asian stock markets experienced a sharp decline on Wednesday following the downgrade of the United States' credit rating by Fitch. This announcement triggered profit-taking and a shift towards less risky assets. In early trading, the Paris stock exchange was down 1.26%, Frankfurt down 1.31%, Milan down 1.08%, and London down 0.81%. The interest rates on European debts also slightly decreased, indicating a move towards safer assets.

Concerns Over US Credit Rating and Chinese Real Estate

The Tokyo stock exchange also faced heavy losses due to concerns about the United States' credit rating and discouraging data on real estate in China. The Nikkei index recorded its biggest decline in a single session this year, dropping 2.3% to 32,707.69 points. In Hong Kong, the Hang Seng index fell by 2.51% as new home sales in China experienced their largest drop in a year in July.

Fitch Ratings Downgrades US Credit Rating

Fitch Ratings downgraded the United States' credit rating from AAA to AA+ for the first time since 2011. The agency cited repeated impasses on the debt ceiling and last-minute resolutions as the reasons for the downgrade. Furthermore, US manufacturing activity contracted for the ninth consecutive month in July, adding to the concerns.

The Biden Administration's Response and Political Blame Game

The downgrade highlights the significant fiscal challenges faced by the Biden administration. While the US credit rating is often viewed as an indicator of its financial health, this recent downgrade underscores the need to find solutions to manage the country's deficits and debt. The administration's response to this situation could shape its economic legacy.

Market Uncertainty and Conclusion

The decision by Fitch Ratings to downgrade the US credit rating was met with strong opposition from the Biden administration. Treasury Secretary Janet Yellen swiftly defended US Treasury securities as the safest and most liquid asset in the world. However, despite Yellen's reassurances, concerns remain. The downgrade also had a notable impact on the Japanese financial sector, with Nomura, Japan's largest brokerage firm, experiencing a sharp decline in its stock price. The yen strengthened against the dollar and the euro, reflecting market uncertainty and risk aversion.

Words of the day

Downgrade : Déclassement

Deficits : Déficits