Political developments in the United States and China have brought world markets on a downward spiral.
A shocking week for global markets as unexpected news came from both the world’s largest economic powers. In the United States and China, political events have trickled down onto the world’s stock exchanges.
But first, let’s start with some numbers:
- All three American indexes fell this week with the S&P 500, the Nasdaq Composite, and the Dow Jones ending respectively at -1,30%, -1,98%, and -0,17%;
- Similarly in Europe, Frankfurt closed at -2,96%, London at -1,69%, and Milan at -3,33%;
- In Asia, the Tokyo Nikkei index dropped by -2,91% and Hong Kong by -3,45%;
- After a severe dip on Wednesday, Shanghai rebounded and closed the week at +0,03%.
Fitch downgraded the United States
The most unexpected market news this week was Fitch’s downgrade of the United States from triple-A to AA+ status.
Fitch is one of the world’s most prestigious rating agencies. Their purpose is to evaluate the financial reliability of companies and countries. Triple-A is the highest possible rating, meaning the country or company is extremely reliable with their debt deadlines.
Fitch had put the United States on watch already in May when the latest debt ceiling crisis brought the country on the brink of default again.
Though President Biden reached a deal to suspend the debt ceiling until 2025, Fitch went ahead with the downgrade anyway. Fitch is the second rating agency to downgrade the United States after Standard & Poor’s in 2011.
US debt is currently $31,4 trillion, 20% higher than the country’s GDP. Any other nation would have declared default by now, but the United States can afford infinite debt as long as the US dollar is the global reserve currency.
Nevertheless, the US sovereign debt is considered a ticking time bomb. If the US lost its grip on the world’s financial system, the bomb would take off, destroying the entire American economy.
China resumes tech crackdown
In China, new measures limit internet use on smartphones to minors. Children up to the age of 8 are limited to just 40 minutes of smartphone activity and are entirely banned from its use between 22 pm and 6 am.
This limit gets increasingly wider as the age increases, until a maximum of 2 hours of activity for teenagers aged 16 and 17.
The Chinese government has curbed the technological sectors with increasing restrictions since 2020. Tech giants and cryptocurrencies fell under Beijing’s target, though restrictions were seemingly relaxed in 2021.
Clearly, the Chinese government is not done with controlling the tech sector, unpleasant news that sent Asian markets on a downward spiral.
