Fitch Places United States’ ‘AAA’ on Rating Watch Negative

Oct 16 • Morning Roll Call • 2494 Views • Comments Off on Fitch Places United States’ ‘AAA’ on Rating Watch Negative

Finally one of the most respected rating agencies has broken rank over the USA debt ceiling deadlock by technically lowering the USA credit rating. Senate Majority Leader Harry Reid had stated on Tuesday evening (USA time) that the major credit rating agencies were considering a downgrade of the United States “as early as tonight,” as congress struggled to reach a debt ceiling agreement. The source of Reid’s information was unclear, and his office did not respond to requests for a follow-up comment. The big three rating agencies; Fitch, Moody’s and Standard & Poor’s, declined to comment on the senator’s remarks, pointing to their previous statements on the debt ceiling showdown. A failure to raise the debt ceiling by Thursday’s deadline could prompt a default.

The official language of the revision is posted here;

‘Fitch Ratings has placed the United States of America’s (U.S.) ‘AAA’ Long-term foreign and local currency Issuer Default Ratings (IDRs) on Rating Watch Negative (RWN). The ratings of all outstanding U.S. sovereign debt securities have also been placed on RWN, as has the U.S. Short-term foreign currency rating of ‘F1+’. The Outlook on the Long-term ratings was previously Negative. The U.S. Country Ceiling has been affirmed at ‘AAA’. Fitch expects to resolve the RWN by the end of Q114 at the latest, although timing would necessarily reflect developments and events, including the duration of any agreement.”

Empire State Manufacturing Survey

Nerves are now beginning to become frayed judging by the print of the Empire State survey. The survey missed expectation by some distance, analysts predicted a figure of 8.2, the print came in at a shuddering 1.5…

The October 2013 Empire State Manufacturing Survey indicates that business conditions held steady for New York manufacturers. The general business conditions index fell 5 points to 1.5. The new orders index rose five points to 7.8 and the shipments index fell three points to 13.1, suggesting that both orders and shipments increased modestly over the month. The prices paid index was unchanged at 21.7 and the prices received index fell six points to 2.4. Labor market conditions were also steady, with the index for number of employees falling four points to 3.6.

Market overview

The DJIA closed down 0.87%, the SPX down 0.71% and the NASDAQ closed down 0.56%. European indices had rallied earlier in the day on the expectation that the debt ceiling negotiations in the USA Congress were moving towards a resolution, the news regarding Fitch’s technical downgrade and the opposing parties failing to reach an agreement came too late to affect European bourses. STOXX index closed up 0.90%, FTSE up 0.64%, CAC up 0.79%, DAX up 0.92%. Ireland’s index closed up 1.22% on the basis that the revised austerity budget was announced.

Commodities fell sharply in Tuesday’s sessions, ICE WTI oil was down 1.43% at the end of the day to $100.95 per barrel. NYMEX natural was down 0.79% at $3.79 per therm. COMEX gold was down 0.27% on the day at $1273.20 per ounce, COMEX silver down 0.76% at $21.19 per ounce.

Equity index futures have naturally reacted badly to the news from the USA, the DJIA is once again gravitating towards 15,000 at 15,095 down 0.85%. The SPX is down 0.72% and the NASDAQ equity index future is down 0.23%.

Forex focus

The dollar gained 0.3 percent to $1.3524 per euro late in New York. It reached $1.3480, the strongest level since Sept. 30th, before the U.S. government shutdown. The greenback sank as much as 0.6 percent to 98 yen before trading at 98.16 yen, down 0.4 percent. Earlier it touched 98.70 yen, the strongest level since Oct. 1st. The euro slid 0.7 percent to 132.76 yen.

Australia’s dollar climbed to the highest level seen since June versus the U.S. currency as traders reduced wagers for further interest-rate cuts by the central bank this year. Minutes of its Oct 1st meeting showed policy makers agreed “the bank should again neither close off the possibility of reducing rates further, nor signal an imminent intention to reduce them.” The Aussie advanced by 0.4 percent to 95.26 U.S. cents and touched 95.48 U.S. cents, the strongest since June 19th.

The loonie, as the Canadian dollar is known, fell by 0.3 percent to C$1.0383 per U.S. dollar at late in in Toronto, after earlier touching C$1.0332, the strongest since Oct. 8th. One loonie buys 96.31 U.S. cents.

Fundamental policy decisions and high impact news events for October 16th

The UK unemployment claimant count is expected to fall by 24K with the unemployment rate remaining at 7.7%. Canada’s manufacturing is expected to fall to 0.3% from the previous month’s 1.0%. ECB president Mario Draghi will give a speech in the afternoon.

The USA publishes its Beige Book on Wednesday. This analysis is used by the FOMC to help make their next decision on interest rates. However, it tends to produce a mild impact as the FOMC also receives 2 non-public books – the Green Book and the Blue Book – which are widely believed to be more influential to their rate decision. Anecdotal evidence supplied by the 12 Federal Reserve banks regarding local economic conditions in their district provides the data.