NEW YORK (Reuters) - Fitch Ratings said it was keeping the United States’ long-term credit rating at AAA with a stable outlook, less than two weeks after Standard & Poor’s downgraded the U.S.
KEY POINTS: * “The affirmation of the US ‘AAA’ sovereign rating reflects the fact that the key pillars of US’s exceptional credit-worthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base,” Fitch said in a statement. * “Fitch will review its fiscal projections in light of the outcome of the deliberations of the Joint Select committee (due by end November) as well as its near and medium-term economic outlook for the US by the end of the year,” it said. * “An upward revision to Fitch’s medium to long-term projections for public debt either as a result of weaker than expected economic recovery or the failure of the Joint Select Committee to reach agreement on at least USD1.2trn of deficit-reduction measures would likely result in negative rating action,” it said.
PETER CARDILLO, CHIEF MARKET ECONOMIST, ROCKWELL GLOBAL CAPITAL, NEW YORK
“I don’t see where that has much significance at this point, it’s good, but obviously we were downgraded, and we did suffer from that downgrade. It sort of validates their opinion, which is supportive to the market but I think the real concern is not so much the downgrade now but the performance of the economy.”
PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO, NEW YORK
“In contrast to S&P who immersed themselves directly in the U.S. political process and didn’t even wait to see what the Congressional committee would come up with in November in terms of budget cuts, Fitch is taking a more patient role as they reiterate the AAA rating of the U.S. with a stable outlook but with caveats and an eye toward November.”
“Fitch news is not entirely unexpected. They were no where close to being as aggressive as Standard & Poor’s. Market expected Moody’s and Fitch to maintain the AAA status.”
JERRY WEBMAN, CHIEF ECONOMIST, OPPENHEIMER FUNDS, NEW YORK
“Two of the three opinions are AAA, one is a tiny bit less at AA-plus. It is important to see what they are saying because the critical thing about the S&P statement was its comment on the ‘willingness to pay’ issue and not the ‘ability to pay’ issue, which is why S&P rankled so many nerves.”
ANTHONY VALERI, FIXED INCOME STRATEGIST, LPL FINANCIAL, SAN DIEGO
“This goes largely as expected. They have hinted at affirming the rating several weeks back. This market is still jittery. We did not need more bad news so this is a positive.”
JACK ABLIN, CHIEF INVESTMENT OFFICER, HARRIS PRIVATE BANK, CHICAGO:
“My sense is they’re (Fitch) looking more at credit-worthiness and less at profit. There are really two issues with sovereign debt — there’s ability and there’s willingness. I think S&P spent more time on the willingness
and the process than it did on the ability... The good news is that S&P’s process has changed the environment in Washington.”
STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO. GREENWICH, CONNECTICUT:
“I think they’re looking at a broader perspective than S&P in the global aspects and how the intricacies of the dollar were lost kind of the initial data inputs... it’s giving a sigh of relief to investors here.
“The greatest concern for investors on sovereign debt issues related to the United States would higher interest rates, and we’re not seeing any of that. For the markets, we’ve had a nice bounce... valuations are vastly improving.”
JANE CARON, CHIEF ECONOMIC STRATEGIST, DWIGHT ASSET MANAGEMENT, BURLINGTON, VERMONT
“Fitch’s approach is focusing on the United States’ ability to pay principal and interest payments, which really no one doubts. No one is worried about getting paid.
“The larger story here is to get our arms around the growth rate of our debt. How you go about coming to an approach to budget control could determine whether we could go into a recession in the near term?
“People will take this in stride. This is not going to cause a big shift in sentiment in the marketplace.”
PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:
“S&P had a very specific basis for their concern which was that there was no long-run plan for budget control.
“Fitch certainly is correct with respect to the breadth of the United States’ potential revenue sources, but it is choosing not to look at the implied demand on that revenue in the entitlements budget as it now stands. It is putting a little more faith in the common sense of Congress and the Administration with respect to getting the budget situation under control.”
BORIS SCHLOSSBERG, DIRECTOR OF CURRENCY RESEARCH, GFT, JERSEY CITY, NEW JERSEY:
“It is helping risk a little bit. All the futures tightened up a little bit. Small boost to risk assets but all eyes are on the summit. That will be the big headline of the day.”
OMER ESINER, SENIOR MARKET ANALYST, COMMONWEALTH FOREIGN EXCHANGE, WASHINGTON
“I think this should provide a some scope for further improvement in risk appetite. Stocks will push a bit higher and ironically the dollar will struggle as it loses some of its safe-haven bid. Generally speaking, though, there was never any real concern about Fitch or Moody’s downgrading the U.S., so I don’t think this is going to have much market reaction. The bigger story today is the meeting between (France’s President Nicholas) Sarkozy and (Germany’s Angela) Merkel. If markets are disappointed by the results of that, we could see risk aversion come back.”
MARKET REACTION: STOCKS: U.S. stock index futures were closed at the time BONDS: U.S. bond prices pared earlier gains FOREX: The dollar rose against the yen