Global Markets Rattled after Fitch Downgrades US Debt

Global equities tumbled Wednesday following a decision by Fitch, the ratings agency, to reduce its credit score for the United States, highlighting "a consistent degradation in governance standards" and the mounting debt load of the US government.

Japan's Nikkei 225 index suffered its worst fall of the year, plunging 2.3%, while Hong Kong's Hang Seng Index sank 2.5%. The selloff was in reaction to Fitch's Tuesday move to lower its US debt rating to AA+ from AAA.

European markets suffered less-severe losses, though the area's reference Stoxx 600 index dipped 1.4% to a two-week low. Germany's DAX and France's CAC 40 retreated 1.4% and 1.2%, respectively. Meanwhile, London’s FTSE 100 also slid to a two-week low, losing 1.5%.

US stock futures were also affected. The S&P 500 index was 0.8% lower and the Nasdaq dropped 1.2% in pre-market trading.

The credit downgrade follows a nail-biting negotiation among US lawmakers over the debt ceiling earlier this year, which nearly resulted in the country's first-ever default. In discussions with officials from the Biden administration, Fitch representatives cited the January 6th insurrection as a considerable worry in regard to US governance. 

What does this mean for me? 

Fitch's reduction of the US's credit rating reflects anticipated fiscal deterioration over the next three years, a significant and growing public debt burden, and a governance slide compared to “AA” and “AAA”-rated peers over the past two decades. Although the news has rattled global markets, analysts expect the downgrade to be nothing more than a light slap on the wrist to the US economy.