Most major brokers do not expect a sustained impact on US financial markets after Fitch's move to strip the country of its top credit rating, taking into account that the economy is now stronger than in 2011 when S&P Global downgraded US statutory debt.
Early moves in US financial markets on Wednesday showed some rejection of riskier assets as investors assessed the impact of the sudden downgrade.
Stock index futures fell, with Nasdaq futures down 0.7%, while Treasury bond yields fell 3 basis points. The dollar rose 0.2%, after broadly declining following the downgrade.
Fitch Ratings downgraded the US long-term foreign currency debt rating by one notch to 'AA+' from AAA, citing a fiscal downturn over the next three years and repeated debt level negotiations that threaten the government's ability to pay its bills.
"Investors have experienced S&P downgrades in 2011. Another reason may be that market players are accustomed to high levels of deficit spending," said Steven Zeng, strategist at Deutsche Bank.
"We see the market impact from this downgrade news ultimately limited, and Friday's jobs report could outweigh this downgrade news as monetary policy remains the main driver."
The 10-year US Bond yield fell by 3.6 basis points (bps) to 4.0109% after Fitch's decision, indicating investors' inclination towards safer assets.
Data released last week showed the US economy grew faster than expected in the second quarter as a resilient labor market supported consumer spending despite the Federal Reserve's rapid interest rate hike.
J. P. Morgan also noted that the spending cuts that ended the debt crisis in 2011 cut federal spending by 0.7% of Gross Domestic Product (GDP) the following year, while the deal signed earlier this year is expected to cut federal spending by less than 0.2% of GDP. GDP next year.
Markets were relieved that Fitch did not make adjustments to the US "country limit", which it affirmed at AAA, indicating strength in the ability of the corporate sector to convert local currency into foreign currency for debt payments.
"If Fitch also lowers the country's limits, it may have negative implications for AAA-rated securities issued by US entities," Goldman Sachs economists said.
