European Stock Markets Open Lower After US Credit Rating Downgrade

European stock markets opened with significant losses on Wednesday following the downgrade of the United States' credit rating by Fitch. The announcement led to profit-taking by investors, causing a negative impact on the markets. In the early trading hours, the Paris Stock Exchange was down 1.26%, Frankfurt down 1.31%, Milan down 1.08%, and London down 0.81%. Meanwhile, interest rates on European debts slightly decreased in the bond market, indicating that investors are turning to less risky assets. These developments reflect the concerns surrounding the impact of the US credit rating downgrade on global markets.

Asian Stock Markets Depressed by US and China

The Tokyo Stock Exchange experienced heavy losses on Wednesday due to growing concerns about the United States, whose financial rating was downgraded by Fitch. Similarly, Hong Kong's stock market also declined due to depressing data on China's real estate sector. The benchmark Nikkei index in Tokyo dropped 2.3% to 32,707.69 points, while the broader Topix index fell 1.52% to 2,301.76 points. This marked the largest single-day decline for the Nikkei this year. In Hong Kong, the Hang Seng index dropped 2.51% around 06:30 GMT, as new home sales in China experienced their sharpest decline in a year. Fitch's decision to downgrade the US credit rating, citing repeated impasses on the debt ceiling and last-minute resolutions, had a significant impact on Asian markets. The rating agency also highlighted the contraction of US manufacturing activity in July for the ninth consecutive month, further adding to the concerns.

US Administration Responds to Credit Rating Downgrade

The Biden administration faced a challenging situation when Fitch Ratings downgraded the United States' sovereign rating from AAA to AA+. While Treasury Secretary Janet Yellen criticized the decision as "arbitrary" and "outdated," it highlighted major economic challenges that the country must overcome. Yellen responded swiftly to the downgrade, emphasizing that US Treasury securities remain the safest and most liquid asset in the world. She also reiterated the fundamental strength of the US economy, despite current budgetary challenges. However, Yellen's reassurance does not completely alleviate the concerns raised by Fitch. Fitch cited growing fiscal deficits and repeated political conflicts over the debt ceiling as the main reasons for the downgrade. These conflicts, which have been a constant feature of the past two decades, have contributed to the erosion of confidence in US fiscal management. Democrats attributed the downgrade to Republican obstruction in raising the debt ceiling earlier this year, while Republicans blamed the economic policies of the Biden administration, which they referred to as "Bidenomics," for the downgrade. This downgrade has clearly highlighted the fiscal challenges that the Biden administration faces. While a nation's credit rating is often seen as a reflection of its financial health, this recent downgrade underscores the importance of finding solutions to manage the country's deficits and debt. How the Biden administration responds to this situation could define its economic legacy.

Words of the day

downgrade : déclassement

rating : notation