Fitch Ratings downgraded U.S. government debt one level from AAA to AA+ on the view that the country’s finances will deteriorate over the next three years due to tax cuts, new spending programs, economic shocks, and political gridlock. In May Fitch warned that it was weighing a downgrade during the debt-limit impasse, and that the recurring debt-limit debate with eleventh-hour agreements have eroded confidence in the government’s budgetary management. Yields on U.S. treasuries are little changed, and while Treasury Secretary described the downgrade as ‘arbitrary’ and ‘outdated’, it often takes the perspective of a neutral party (political outsider) to highlight vulnerabilities.
The U.S. dollar index is +0.12%, reflecting the dollar’s overnight gains vs. its G10 counterparts: +0.91% vs. NZD, +0.74% vs. SEK, +0.73% vs. AUD, +0.48% vs. CHF, +0.38% vs. GBP, +0.27% vs. CAD, +0.19%vs. EUR.
As mentioned, U.S. Treasury yields are little changed overnight, with slight declines in the 1-month to 4-year tenors and gains in the 5- to 30-year tenors.
U.S. Equity Index futures are signaling a drop at the open of trading today. S&P 500 futures are -0.65% and Nasdaq futures are -0.90%. All major global equity indexes are trading in the red today as traders digest the possible impact of the U.S. debt downgrade.
ADP Employment Change data (released today ahead of tomorrow’s Change in Nonfarm Payrolls) was 324k vs. a 190k estimate.
