Ratings down, markets down. What will the week bring?

last week Fitch's decision to downgrade the long-term credit rating of the United States to the AA+ level surprised the markets and was the main topic of the industry media in the past days. The last time a similar decision was made was in 2011, when, shortly after the global financial crisis, the US rating was downgraded by Standard & Poor's. Clearly, Fitch's decision caused a deterioration in market sentiment - is it time to start panicking?

Rating down but macro data solid

While certainly important, the decision of one of the most important rating agencies should not come as a surprise. It may come as a surprise that the rating downgrade took place just now, but its reasons have been known for a long time. Fitch draws attention to the decline in the quality of governance in the world's largest economy. Key economic decisions are no longer the result of long-term planning, but more and more often the result of political compromises. However, according to the analysis XTB – in the first month after the rating downgrade for a developed country, the yields on bonds of this country usually recorded slight decreases.

In theory, financial institutions obliged to invest in securities with the highest possible rating would have to get rid of some US bonds. In practice, however, US debt is treated in separate categories. Not only because of the almost hegemonic position of the US in financial markets, but also because the dominant AAA market is 4 times smaller than the US debt market.

Fitch's decision is certainly a signal that the post-war position of the US is beginning to weaken. However, despite the declines that dominated the charts of the US stock indices last week, the recent macroeconomic data from the US turned out to be solid. If a correction is to come, the market seems to need more reasons.

In today's webinar:

• Why is the US rating change important?
• Is this the beginning of a correction?
• What does the US earnings season tell us?

About the host

Dr Przemysław Kwiecień - Chief economist X-Trade Brokers. Doctor of Economics at the University of Warsaw, graduate of the University of Warsaw and London Metropolitan University (MSc). Holder of the prestigious CFA certificate. He has been working for XTB since 2007, previously he gained experience as an advisor to the Minister of Finance, Mirosław Gronicki, and an economist at Bank Millennium. At XTB, he manages the Analysis Department.

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