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Global stock markets declined on Wednesday after ratings agency Fitch downgraded US credit rating amid American government’s growing debt burden.
In the worst day of the year, Japan’s benchmark Nikkei 225 (N225) went down 2.3%, while Hong Kong’s Hang Seng (HSI) Index closed at 2.5%, according to CNN.
European stocks benchmark Stoxx 600 index fell to its lowest level in two weeks, declining 1.4% by 5.57am ET.
Likewise, Germany’s DAX (DAX) fell 1.4% and France’s CAC (CAC40) 40 1.2%, while London’s FTSE 100 (UKX) also hit a two-week low, down 1.5%.
Wall Street stocks also joined international bourses in retreating after Fitch downgraded the US of its highest ratings, reported AFP.
About 15 minutes into trading, the Dow Jones Industrial Average was down 0.3% at 35,508.82.
The broad-based S&P 500 shed 0.8% to 4,541.43, while the tech-rich Nasdaq Composite Index sank 1.3% to 14,094.12.
The credit rating downgrade comes after US lawmakers negotiated up until the last minute on a debt ceiling deal earlier this year, risking the nation’s first default.
In a meeting with Biden administration officials, representatives from Fitch also repeatedly highlighted the January 6th insurrection as a significant concern as it relates to US governance, a person familiar with the matter told CNN.
“The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to ‘AA’ and ‘AAA’ rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions,” Fitch said in a statement.
The agency expects America’s general government deficit to rise to 6.3% of GDP in 2023, from 3.7% in 2022.
“The last-minute saves performed by Washington aren’t the kind of actions held in high esteem by rating agencies, but the lack of movement in US Treasury bonds … suggests the market has already largely quantified and assessed the damage done,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said in a note.
China and Japan are the largest foreign investors in American government debt. Together they own $2 trillion, which is more than a quarter of the $7.6 trillion in US Treasury securities held by foreign countries.
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