As officials prepared for their final day of budget talks, Fitch put US Treasury bonds on negative watch. This is typically the first step taken before a full downgrade, though experts pointed out that rather than unnerving investors as they await an agreement between Democrats and Republicans, markets had not taken as big a hit as they should have done if traders were truly afraid.
“Equity markets in the US yesterday and Asia overnight were in the red, but not the sort of fear-related selling one might expect to see,” said Clear Currency’s Peter O’Flanagan.
But O’Flanagan added that even if a deal is struck between US politicians to resolve the dispute, as is expected, America’s troubles are far from over, with implications not just on the country’s budget, but also for markets because the possible impact on quantitative easing.
He explained: “The costs of the government shut-down is unknown as yet, [but] estimates suggest approximately 0.15 off GDP per week. The impact on jobs and growth will likely see any possible taper now pushed back into 2014.”
The Dow Jones closed on Tuesday at 15,618, down 0.91%.
