We had warnings on the US debt limit stalemate from both Moody’s and Fitch today. Fitch placed the United States' 'AAA' on rating watch negative:

  • The contested 2020 presidential election, brinkmanship over the debt limit to advance political agendas, and failure to reach consensus on the country's fiscal challenges are recent signs of the deterioration in governance.”

More in the bullet points above from both agencies.

The Fitch announcement sent the yen higher, albeit briefly. Yen crosses dipped across the board but soon recovered with USD/JPY making a high above 139.60 as I post.

Earlier in the session Nvidia announced beats (blowout beats!) in its earnings announcement and provided extremely strong guidance. Its shares rocketed higher in after hours trade. NASDAQ equity index futures (NQ) on Globex found support on the news. The NVDA stock rally has brought the chip maker within sight of a valuation of US$1 trillion.

In regional news, South Korea's central bank held interest rates steady for a third meeting on Thursday, as expected, after a 1-1/2-year-long tightening cycle. Singapore’s economy contracted q/q in the first quarter, raising the risk of a recession.

Across major FX yen was the big mover (yen lower) but we did see declines more broadly. EUR, GBP, AUD, NZD, CAD all down against the dollar.

Data from Japan today showed the 8th consecutive week of net foreign purchases of Japanese stocks. If the BOJ pivot and send the yen higher the foreign buyers will get a nice windfall FX gain.

Asian equity markets:

  • Japan’s Nikkei 225 +0.5%

  • China’s Shanghai Composite -0.3%

  • Hong Kong’s Hang Seng -1.6% to a two-month low

  • South Korea’s KOSPI -0.3%

  • Australia’s S&P/ASX 200 -0.8%

On the Bloomberg Terminal from Fitch. If S&P &/or Moody's do something similar the impact on markets will be greater.

fitch usa credit watch negative 25 May 2023