Fitch Ratings recently downgraded the United States' credit rating from AAA to AA+, citing repeated debt-limit political standoffs, an inadequate fiscal framework, and a steady deterioration in standards of governance over the last 20 years. The downgrade comes after a partisan clash over the country's borrowing authority threatened a default earlier this year. In addition to the Bank of Japan's long term yield tweak, the move could push bond yields further, pushing annual interest repayment to $1 Trillion. The US Treasury Secretary, Janet Yellen, disagreed with Fitch's downgrade, calling it "arbitrary and based on outdated data". Biden administration officials also blasted the downgrade, saying that Fitch repeatedly raised the January 6th insurrection at the Capitol as a factor in its decision.
The S&P 500 fell on Tuesday as weaker-than-expected earnings from Norwegian Cruise Line weighed on the market, while Pfizer's report of halved revenue dragged down healthcare stocks. However, Merck impressed with its cancer drug sales, and Uber saw its first quarter of free cash flow exceed $1 billion, though its third quarter forecast missed estimates. There were also signs of softness in the labor market, as job openings fell more than expected in June.
Gold prices were under pressure from a strong dollar and expectations that the resilient U.S. economy would allow the Fed to continue raising interest rates. Fitch's downgrade of the U.S. sovereign rating had a positive impact on gold prices as some investors ran into bullion as confidence in the USD deteriorated.
Oil prices soared near April highs as US crude stockpiles plummeted, signalling insatiable demand that overshadowed worries of waning consumption in China and Europe. OPEC slashed crude output by 900,000 barrels per day to 27.79 million in July, the steepest drop since 2020, as Saudi Arabia spearheaded hefty cuts.
Asian currencies stumbled when Fitch downgraded the U.S. bond rating, but the dollar held its ground thanks to upbeat economic data. Though Asian currencies retreated, Fitch's move is seen as a superficial scratch as attention stays fixed on central bank gambits. Analysts say Fitch's fiscal warning shot did not rock the boat as much as the last time Treasury bonds were downgraded.