Commentary: US debt downgrade and payrolls
All major global equity indices declined in past week. The major news was a surprise downgrade of US government credit by Fitch Ratings and S&P from AAA to AA+. As noted by the rating agencies, the current “medium term fiscal challenges” were the underlying reason for the downgrade. Importantly Moody’s still holds the AAA rating. As a result, the treasury yields have increased. The 10-year US Treasury yield rose from 3.96 to 4.05, while that of 30-year treasury increased from 4.03 to 4.21.
Regarding the US labor market, the reported data had mixed implications. On the one hand, the newly created jobs were reported below forecasts at 187,000, therefore, hinting on slowing demand for labor. On the other hand, the unemployment rate declined from 3.6% to 3.5% and wage growth, contrary to expectations, remained unchanged at 4.4% y/y. Overall, the labor market shows a stable trend of easing, which is a necessary condition for soft landing scenario in the US.
