- Nomura say it is not clear that a downgrade will be forthcoming as we approach October 17.
- S&P and Moody’s indicate that they are likely to see through the impasse and focus on long-term issues
- Fitch remains a risk, especially as they have a negative outlook on the US at present
- Nomura go on to say they think the market impact of a downgrade would would be less severe than in 2011 – that was a surprise, the implications at the time wee unknown. Now, though, its accepted widely that there will be little or no forced selling of assets, and that such rating agency action carries little new information on the fiscal health of the US
“Therefore, we maintain our current trading stance, and continue to hold a long EM basket as well long cross/Yen exposure (GBPJPY). We recognize that there could be some adverse market reaction as we get closer to the October 17 date, perhaps amplified by the market’s Pavlovian response to a potential downgrade, Nomura concludes.