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US debt downgrade spooks global markets

by LLB Editor
2nd Aug 23 10:47 am

There is a saying that when the US sneezes, the rest of the world catches a cold. That is certainly true with how the US government’s credit rating downgrade has troubled markets globally.

Laith Khalaf, head of investment analysis at AJ Bell, said: “Ratings agency Fitch lowered the rating from the top level of AAA to AA+ amid concerns about the country’s finances and its debt burden. In effect, this is saying the US is now higher risk than previously thought. The news took markets by surprise, sending Asian and European indices down by approximately 1%.

“When the debt of the world’s largest economy is seen as lower quality, it will naturally trouble investors and make them rethink their portfolios. It also might surprise some people given how the US economy is proving to be more resilient than expected.

“There were only six stocks in positive territory on the FTSE 100. BAE Systems jumped 4.7% after upgrading forecasts on rising military spend. Taylor Wimpey’s results contained nuggets of good news, helping to lift its shares along with sector peers Barratt Developments and Berkeley. Convatec moved higher after it lifted full-year guidance, while BP benefitted from ongoing strength in the price of oil.

“Brent Crude advanced 0.6% to $85.45, meaning the commodity price has now risen by 18% since the end of June amid signs of tightening supply.”

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