Fitch downgraded the US’ credit rating to AA+ from AAA. You can read more here: Statement, Reuters, Bloomberg. They cited an “erosion of governance” that has “manifested in repeated debt limit standoffs and last-minute resolutions.” Sounds like they’re trying to get ahead of the upcoming expected shutdown showdown unless Congress passes a full budget by the Oct. 1 deadline. The downgrade in 2011 didn’t have a long-term impact, so many investors don’t expect today’s move to have one either. Also, investors expect UST to remain in high demand because there is no safe and sizeable alternative. Larry Summers, Mohamed El-Erian and Paul Krugman echoed Janet Yellen's complaint that Fitch’s move was "arbitrary and based on outdated data." In case you want to know, Germany, Sweden, Switzerland still are AAA, per Bloomberg.
The defensively long setup in US equities most likely will translate into a resilient market with a high bar to trigger a sharp sell-off. UBS’ composite beta positioning for active managers is right around neutral now– the highest level since 2021. Multi-asset managers have flipped from roughly a 3 SD underweight to slight overweight in equities in the last month. A lot of folks had invested in IG credit vs equities this year, so they may be switching gears. Hedge funds have also increased net exposure to the highest level over the past year. But we can see that protection is also in demand– put/call ratios increased across SPY, QQQ and IWM, per UBS.
About 28mm folks will have to start payments on federal student debt after a 3-yr pause. Folks are warning that the systems won’t be able to handle the deluge.
Nikola is on fire (not literally, but figuratively, up almost 50% in a short period, as mgmt. is conserving cash and taking in funds. Another fan favorite, Tupperware, is enjoying a rally, as investors don’t seem to think their bankruptcy is going to happen.
Poland notified NATO and is sending more troops to its border with Belarus. They want an explanation for a recent violation of its airspace. Tensions are on the rise after Wagner hopped over to Belarus, so they are worried that the fighters might infiltrate Poland posing as migrants.
Brazil was the first to hike rates, and now it’s leading on rate cuts.
China is going to limit kids’ time on smartphones. So, social media co’s like Tencent and ByteDance have to grin and bear it. Minors will be banned from accessing the internet from 10:00 pm – 6:00 am, and 16-to 18-yr olds can only use it for 2 hours. Imagine that in the US…
Deputy Gov Uchida said that the BOJ is far from raising short-term rates, so don’t anchor on last week’s policy adjustment.
The BOE is considering speeding up its bond sales, with the goal of shrinking its balance sheet by £120 billion per year, versus the £80 billion current pace.