ASX set to rise, Wall Street mixed after downgrade; $A stronger
US stocks, bonds and the value of the US dollar are drifting following the latest reminder that the US government seems to be hurtling toward an unsustainable mountain of debt.
The S&P 500 was mostly unchanged in afternoon trading after Moody's Ratings became the last of the three major credit-rating agencies to say the US federal government no longer deserves a top-tier 'Aaa' rating. The Dow Jones was up 84 points, or 0.2 per cent and the Nasdaq composite was 0.1 per cent lower.
The Australian sharemarket is set to advance, with futures at 5am AEST pointing to a rise of 55 points, or 0.7 per cent, at the open. The ASX lost 0.6 per cent on Monday. The Australian dollar strengthened. It was 0.7 per cent higher at 64.52 US cents at 5am AEST.
Moody's pointed to how the US government continues to borrow more and more money to pay for its expenses, with political bickering making it difficult to either rein in Washington's spending or raise its revenue in order to get its ballooning debt under more control.
Nothing Moody's said is new, of course, and critics have been railing against Washington's inability to control its debt for many years. Standard & Poor's lowered its credit rating for the US government in 2011.
Because the issues are already so well known, investors have likely already accounted for them, according to Brian Rehling, head of global fixed income strategy and other analysts at Wells Fargo Investment Institute. They're expecting 'limited additional market impact' following the initial reactions to the Moody's move.
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Stocks and US government bond prices at first fell sharply early in Monday's trading, but they trimmed or shook off their losses as the day progressed.
A downgrade essentially warns investors globally not to lend to the US government at such low interest rates, and the yield on the 10-year Treasury briefly jumped above 4.55 per cent early Monday morning, up from 4.43 per cent late on Friday. That number shows how much in interest the US government has to pay in order to borrow money for 10 years. But it later regressed to 4.48 per cent as some more calm returned to the market.
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