| The US loses its AAA rating at Fitch, sparking a slump in global stock markets, and Donald Trump is indicted in 2020 election probe. — David Goodman The US was stripped of its top-tier sovereign credit grade by Fitch Ratings, which criticized the country's ballooning fiscal deficits and an "erosion of governance" that's led to repeated debt limit clashes over the past two decades. The US saw its scrore cut one level from AAA to AA+, echoing a move made more than a decade ago by S&P Global Ratings. "The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades," Fitch said in a statement. The move reverberated through global markets, sending stocks plunging. Losses in Europe dragged the benchmark regional index down by the most in almost four weeks, the UK's FTSE 100 plunged and S&P 500 and Nasdaq 100 futures slid more than 1%, signaling a sharp drop on Wall Street following five months of gains for US stocks. Reaction to the Fitch news was calmer in Treasuries and the dollar. Yields were steady, while a gauge of greenback strength was little changed. Prominent economists Larry Summers and Mohamed El-Erian joined a cohort of their peers in criticizing the decision to downgrade the US given signs of resilience in the world's largest economy. Former Treasury Secretary Summers said while there are reasons for concern about the long-run trajectory of the US deficit, the country's ability to service its debts wasn't in doubt. El-Erian, chief economic adviser to Allianz SE, said the downgrade was "a strange move" that was unlikely to impact markets. Donald Trump has been indicted in Washington on federal charges over his efforts to overturn the 2020 presidential election, the third politically explosive criminal prosecution of the former president as he makes his latest run for the White House.
The charges from Special Counsel John "Jack" Smith's office can carry penalties of as much as 20 years in prison, but Trump would likely face far less than the maximum if convicted since he doesn't have a criminal record. Trump, 77, has been instructed to appear in court at 4 p.m. on Aug. 3. At 8:15 a.m., we get the monthly ADP employment report, a closely watched bellweather before Friday's oficial jobs data. There's also a monthly report on mortgages applications. Earnings include Qualcomm, CVS and Shopify. Here's what caught our eye over the past 24 hours: Somehow it's Jobs Week again. On Friday we get Non-Farm Payrolls for July, and economists are looking for 200K new jobs, with the unemployment rate holding steady at 3.6%. To back up for a second, earlier in the week, Mark McCormick of TD Securities published an interesting chart showing that "good news is good news" again. In recent months, positive economic surprises around the world have produced a positive response in risk assets. One implication is that markets are less worried about inflation and central bank hiking, and are excited to see growth again. Now going back to the immediate data. Some of it this week so far has been a little on the "meh" side. Yesterday's JOLTS report missed slightly on the Job Openings front and the prior month was revised lower. Meanwhile the Quit Rate is back at 2.4%, which is not far from pre-pandemic levels. Meanwhile, the ISM Manufacturing report yesterday was not great. Most corporate survey data has been pretty awful for a while, but this showed a fairly big drop in the employment sub-index from 48.1 to 44.4. This was the lowest reading for that sub-index since July 2020. There's a lot of enthusiasm about all of the building of factories. But building factories is construction work. The actual manufacturers aren't so excited right now. In a note to clients yesterday, Omair Sharif of Inflation Insights wrote that the survey was "...troubling, especially as it relates to employment. The survey continues to suggest that factory payrolls will start contracting more consistently in the payrolls data." Meanwhile, there's plenty of data coming out between now and Friday, including ADP, ISM Services, Initial Claims, and Durable Goods Orders. Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart. | 
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