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U.S. markets may not see lasting impact from Fitch downgrade

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U.S. markets may not see lasting impact from Fitch downgrade

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 26, 2023. REUTERS/Brendan McDermid/File Photo

Aug 2 (Reuters) – Most major brokerages do not expect a sustained drag on U.S. financial markets following Fitch’s move to strip the country of its top credit rating, noting that the economy is stronger now than in 2011 when S&P Global downgraded U.S. sovereign debt.

Early moves in U.S. financial markets on Wednesday indicated some aversion to riskier assets as investors assessed the impact of the surprise downgrade.

Stock index futures fell, with Nasdaq futures down 0.7%, while Treasury yields slid by 3 basis points. The dollar climbed 0.2%, after slipping broadly in the wake of the downgrade.

Fitch Ratings on Tuesday cut its rating on U.S. long-term foreign-currency debt by one notch to ‘AA+’, citing fiscal deterioration over the next three years and repeated debt ceiling negotiations that threaten the government’s ability to pay its bills.

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“Investors have lived through the S&P downgrade in 2011 and remember coming away unscathed. Another might be that people have gotten used to an elevated level of deficit spending,” said Steven Zeng, strategist at Deutsche Bank.

“We see the market impact from the downgrade news as ultimately limited, and Friday’s jobs report could trump the downgrade news as monetary policy is still the dominant driver for yields.”

The 10-year U.S. Treasury yield declined about 3.6 basis points (bps) to 4.0109% immediately after Fitch’s decision, indicating investors’ preference for safer assets.

“The Treasury market was highly volatile in the wake of S&P’s downgrade in 2011, but the underpinnings of the U.S. economy were very different then… given the resilience of the U.S. economy and the tightness of labor markets,” said J.P.Morgan rate strategist Jay Barry.

Data released last week showed the U.S. economy grew faster than expected in the second quarter as a resilient labor market supported consumer spending, with markets now pricing in a soft-landing scenario for the economy despite rapid interest rate hikes by the Federal Reserve.

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J.P.Morgan also noted that the spending cuts that ended the debt ceiling crisis of 2011 reduced federal spending by 0.7% of Gross Domestic Product (GDP) the following year, while the deal signed into law earlier this year is expected to lower federal spending by less than 0.2% of GDP next year.

Markets took comfort when Fitch did not adjust U.S. “country ceiling”, which it affirmed at AAA, showing strength in the ability of the corporate sector to convert local currency into a foreign currency for debt repayments.

“If Fitch had also lowered the country ceiling, it could have had negative implications for other AAA-rated securities issued by U.S. entities,” said Goldman Sachs economists led by Jan Hatzius.

Moody’s still holds a ‘Aaa’ rating on U.S. government debt. In a review in July, it cited economic strength, “extraordinary” funding capacity, and “central roles of the U.S. dollar and the U.S. Treasury bond market in the global financial system.”

Reporting by Susan Mathew in Bengaluru; Editing by Saumyadeb Chakrabarty

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Our Standards: The Thomson Reuters Trust Principles.

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'Show solidarity': Pro-Palestinian protesters camp across Australian universities

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'Show solidarity': Pro-Palestinian protesters camp across Australian universities
Hundreds of people protesting Israel’s war in Gaza rallied at one of Australia’s top universities on Friday demanding it divest from companies with ties to Israel, in a movement inspired by the student occupations sweeping U.S. campuses.
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China increases aggressive moves against Taiwan as island prepares to inaugurate new president

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China increases aggressive moves against Taiwan as island prepares to inaugurate new president

KAOHSIUNG — Virtually every day, the People’s Republic of China does something unprecedented — its coast guard briefly boarding a Taiwanese tourist boat, flying military aircraft ever closer to Taiwan or increasing harassment of Taiwanese fishing boats in the South China Sea. 

“This is a problem,” says Dean Karalekas, author of “Civil-Military Relations in Taiwan: Identity and Transformation.” “Because these unprecedented actions are creating a new normal. Beijing hopes that we (the West) will sit by and watch as they take over Taiwan, just as we did when they used these same salami-slicing tactics to take over the South China Sea.” 

The world began noticing more of China’s hostile actions following the visit to Taiwan by former U.S. House Speaker Nancy Pelosi in 2023, but the strategy has been in place for some time. 

“China’s plan to ‘normalize’ military encroachments was planned long before Pelosi’s visit,” Taipei Times columnist and political commentator C. Donovan Smith told Fox News Digital. “The military exercises were far too complex and logistically complicated to have been planned in the short span of time between the announcement of her trip and her arrival in Taiwan.” 

TAIWAN ELECTION: RULING PARTY CANDIDATE WINS TIGHTLY CONTESTED PRESIDENTIAL RACE, UPSETTING CHINA’S AMBITIONS

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President-elect William Lai votes in southern Taiwan’s Tainan city Jan. 13, 2024.  (AP Photo/Ng Han Guan)

Surrounding Taiwan in a mock “quarantine” and performing missile “tests” in 2023 was also intended to push Taiwanese voters toward politicians and parties more friendly to China. But, as has been the case in the last three elections here, Beijing’s ploys were ineffectual. Taiwan in January elected the incumbent vice president, William Lai, to take over from two-term President Tsai Ing-wen. Both Tsai and Lai are members of the Democratic Progressive Party (DPP).   

The incoming Taiwan president has repeatedly pledged to make no changes to policies in place over the last eight years. Beijing, however, sees William Lai (Lai Ching-te) as a “splittist” and a supporter of Taiwan independence. Lai previously did voice support for independence but has tried to walk that back. China, however, does not forgive nor forget. Many political experts believe Beijing will ratchet up pressure as Lai enters office later this month. 

China's Xi Jinping

Chinese President Xi Jinping waves at an event to introduce new members of the Politburo Standing Committee at the Great Hall of the People in Beijing Oct. 23, 2022.  (AP Photo/Andy Wong, File)

A recent example of China’s attempts to establish this “new normal” is changes to airspace rules. China is close to finishing a massive new airport serving Xiamen in Fujian Province. Just 6.2 miles away, however, sits the island of Kinmen, which has remained a part of the Republic of China (ROC), better known as Taiwan, since 1949.

Kinmen Airport is strategically important for Taiwan. In 2015, the two sides worked out a deal to change a flight path that was a bit too close for Taiwan’s comfort. But in February, Beijing unilaterally backed out of the deal, announcing that, from May 16, new air routes would begin operating to “further optimize airspace” around the area. 

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FOR CHINA’S MILITARY PLANNERS, TAIWAN IS NOT AN EASY ISLAND TO INVADE

A Chinese fighter jet seen near Taiwan

A fighter jet flies in the direction of Taiwan as seen from the 68-nautical-mile scenic spot, the closest point in mainland China to the island of Taiwan, in Pingtan in southeastern China’s Fujian Province Aug. 5, 2022. (AP Photo/Ng Han Guan)

Few China watchers think China picked the day arbitrarily, says Karalekas. 

“Beijing has a pattern of testing new leaders of enemy states. They tested Bush with the EP-3E spy plane incident. They tested (then-Japanese prime minister) Naoto Kan with the Senkaku boat collision. We can expect them to test Lai by creating some sort of mini-crisis around the time he takes office on May 20.” 

“I think China is really ramping up threats,” Eric Hsu told Fox News Digital. Hsu lives in southern Taiwan’s biggest city, Kaohsiung, has worked on historical restoration projects and hosts a podcast on Taiwan history.

He says he isn’t only worried about military hardware, but also what he termed, “brainwashing videos and moves by KOLs,” (Key Opinion Leaders, a term used to describe internet influencers).

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Taiwan military vehicles equipped with U.S. missiles

Military vehicles equipped with a U.S.-made TOW 2A missile during a live fire drill in Pingtung, Taiwan, July 3, 2023. (REUTERS/Ann Wang)

Hsu places much of the blame at the feet of local opposition parties seen by many as more friendly to Beijing. Describing the current domestic political situation, he said Taiwan faces “not just an enemy at the gate, but also enemies within.” South Taiwan is a DPP stronghold, but not everyone in the south agrees that the opposition parties are the problem. 

Another resident of Kaohsiung, a self-employed businessperson and mother, Ms. Lin, thinks the DPP hasn’t been sincere in reaching out to China. 

“They’ve had eight years, and now they will get at least another four,” Lin told Fox News Digital. “What Taiwan needs are brave leaders, people willing to try new solutions, and I don’t see any such people in the current DPP leadership.”   

TAIWAN PRESIDENT-ELECT CHOOSES NEW FOREIGN, DEFENSE MINISTERS AS CHINA ANNEXATION THREATS INTENSIFY 

Taiwanese soldiers conduct live military exersies

Soldiers disembark from AAV7 amphibious assault vehicles during the Han Kuang military exercise, which simulates the China’s People’s Liberation Army invading the island July 28, 2022 in Pingtung, Taiwan. (Annabelle Chih/Getty Images)

The main opposition party, the Kuomintang (KMT), denies it is “China-friendly” and instead says it is “peace-friendly.” Chinese dictator Xi Jinping has met with the KMT’s Ma Ying-jeou twice, first in Singapore in 2015 when Ma was in office as ROC (Taiwan) president. It was the first time since the end of WWII top leaders from China and Taiwan sat in the same room. Each side in 2015 chose to ignore official titles and address each other as “Mr. Xi” and “Mr. Ma.” On April 10,, “Mr. Xi” and former Taiwan president “Mr. Ma” met again, this time in Beijing. 

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Some experts see such meetings between the KMT and China favorably, arguing that any dialogue is good and – if nothing else – provides a way for China to save face as it continues its policy of mandatory “reunification,” which China now says may need to be achieved by force. Others in Taiwan and abroad see Ma’s meetings as straying far too close to an acceptance of the idea that Taiwan is a part of China. 

 

China warship

A Chinese warship sails during a military drill near the Taiwan-controlled Matsu Islands near the Chinese coast April 8. (Reuters/Thomas Peter)

As it stands, the ruling DPP says it’s content with the status quo, including keeping Taiwan’s official name, the Republic of China. The KMT is generally more in favor of talks with Beijing under a mutual respect “consensus” idea that boils down to agreeing that both sides are “China,” but each side is free to interpret what this “one China” means.  

The problem with the KMT’s thinking, central Taiwan-based newspaper columnist and political commentator Michael Turton told Fox News Digital, is that “Xi’s goal is the complete subjugation of Taiwan, just like Hong Kong. Two of China’s ambassadors abroad have already indicated that Taiwanese opposed to Beijing rule will be shipped off to concentration camps. Given this goal, how can there ever be dialogue with mutual respect?”

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Brussels, my love? Champage cracked open to celebrate the Big Bang

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Brussels, my love? Champage cracked open to celebrate the Big Bang

In this edition, we zoom in on dwindling press freedom in Europe and check how Europe is doing 20 years after the big bang enlargement.

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This week, we are joined by Olena Abramovych, Brussels correspondent for Ukrainian TV, Ricardo Borges de Castro, analyst in European and global affairs and Polish journalist Dorota Bawolek.

Panelists reflect on the big bang enlargement of the European Union that took place 20 years ago when leaders of 10 new countries presented their flags to Pat Cox, then president of the European Parliament. Despite the bumps along the way, the panel agreed it was a success.

“Even though you can say that the story has not always be rosy, over the past 20 years it has been a great story”, Ricardo Borges de Castro said.

The panel also marked International Press Freedom Day by focusing on the dwindling press freedom in the EU.

“It is very worrying and at the same time, unfortunately, not very surprising”, said Dorota Bawolek, who suffered attacks both online and offline for her reporting, and experienced censorship.

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“Democracy in Europe is not living its best days at the moment. And media and media freedom is one of the victims of it”, she said.

Watch “Brussels, my love?” in the player above.

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