Market Extra: Dow futures dip after Fitch puts U.S. credit ratings on ‘ratings watch negative’ as debt-ceiling deadline nears

U.S. stock futures were mixed after the top Triple-A credit ratings of the U.S. were placed on “rating watch negative” by credit firm Fitch Ratings Wednesday evening, due to “brinkmanship” in Washington, over raising the government’s borrowing limit and the nation’s growing debt burden.

Dow futures

were off about 66 points, or 0.2%, near 32,800 on Wednesday evening, according to FactSet, signaling the potential for continued pressure on the blue-chip index after it closed Wednesday down for a fourth day in a row.

S&P 500 futures

were up 0.4%, while those of the Nasdaq Composite

were up 1.4%, at last check. 

After the U.S. reached its $31.4 trillion debt limit in January, the Treasury has been taking “extraordinary measures” to avoid breaching the debt ceiling, but is expected to exhaust its options as soon as June 1, 2023, or the “X-date,” with cash balances at the Treasury falling to $76.5 billion as of May 23, Fitch said.

“The failure to reach a deal to raise or suspend the debt limit by the x-date would be a negative signal of the broader governance and willingness of the U.S. to honor its obligations in a timely fashion, which would be unlikely to be consistent with a ‘AAA’ rating,” Fitch said.

Also, avoiding a default by minting “a trillion-dollar coin or invoking the 14th amendment is unlikely to be consistent with a ‘AAA’ rating and could also be subject to legal challenges,” the rating firm said.

Related: McCarthy addresses debt-ceiling angst: ‘I would not, if I was in the markets, be afraid of anything’

“As Secretary Yellen has warned for months, brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers, and threatens the credit rating of the United States,” Treasury spokesperson Lily Adams said Wednesday night. “Tonight’s warning underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy.”

While Fitch said the likelihood of the U.S. failing to make full and timely payments of its debt securities was a “very low probability event,” it would be considered a debt default that would result in ratings on affected securities being slashed to “D,” with other debt securities maturing in the following 30 days downgraded to “CCC.”

S&P Global Ratings in 2011 cut its long-term credit ratings for the U.S. to AA+ from Triple A, after a protracted U.S. debt-ceiling fight.

Helping boost Nasdaq futures was Nvidia Corp.
which has its shares jump more than 25% in the extended session Wednesday, after executives predicted that revenue would exceed the company’s record by more than 30% in the current quarter.

See: Nvidia barrels toward rare $1 trillion valuation after putting a dollar figure on AI boost

This post was originally published on MarketWatch

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