Global stock markets experienced a decline on Wednesday following the downgrade of the US credit rating by ratings agency Fitch, due to the American government’s growing debt burden. Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index suffered losses of 2.3% and 2.5%, respectively, marking the worst day of the year.
European stocks, represented by the Stoxx 600 index, fell 1.4%, reaching its lowest level in two weeks, with Germany’s DAX and France’s CAC 40 declining by 1.4% and 1.2%, respectively. London’s FTSE 100 also experienced a 1.5% drop, hitting a two-week low.
Wall Street stocks followed suit, with the Dow Jones Industrial Average down 0.3% and the S&P 500 and Nasdaq Composite Indexes shedding 0.8% and 1.3%, respectively.
The credit rating downgrade by Fitch comes after US lawmakers engaged in last-minute negotiations on a debt ceiling deal, risking the country’s first default.
Fitch highlighted concerns over the January 6th insurrection during its meeting with Biden administration officials, emphasizing its impact on US governance.
The agency pointed to the expected fiscal deterioration over the next three years, the growing government debt burden, and the erosion of governance as reasons for the downgrade.
While the downgrade may not have surprised the market, as evidenced by the lack of movement in US Treasury bonds, China and Japan remain the largest foreign investors in American government debt, holding a combined total of $2 trillion.
This constitutes over a quarter of the $7.6 trillion in US Treasury securities owned by foreign countries. As the US grapples with its fiscal challenges, global investors are closely watching the developments and their potential implications for the world economy.
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