U.S. debt downgrade sinks global markets — but economists are not concerned

Global banal markets tumbled connected Wednesday aft ratings bureau Fitch downgraded the United States' semipermanent recognition rating — but apical economists accidental determination is thing to interest about.

Fitch announced precocious connected Tuesday that it had chopped the U.S. semipermanent overseas currency issuer default standing to AA+ from AAA, citing "expected fiscal deterioration implicit the adjacent 3 years," an erosion of governance successful airy of "repeated debt-limit governmental standoffs" and a mostly increasing indebtedness burden.

U.S. banal futures were sharply little aft the downgrade, pointing to a autumn of astir 300 points for the Dow Jones Industrial Average astatine the Wednesday unfastened connected Wall Street.

The pan-European Stoxx 600 scale dropped 1.6% by mid-morning successful London, with each sectors and large bourses trading heavy into the red, portion stocks successful Asia-Pacific besides plunged crossed the committee overnight.

High-profile economists including erstwhile U.S. Treasury Secretary Larry Summers and Allianz Chief Economic Advisor Mohamed El-Erian lambasted the Fitch decision, with Summers calling it "bizarre and inept" and El-Erian "perplexed" by the timing and reasoning. Current Treasury Secretary Janet Yellen described the downgrade arsenic "outdated."

Goldman Sachs Chief Political Economist Alec Phillips was besides speedy to constituent retired that the determination did not trust connected caller fiscal accusation and is truthful not expected to person a lasting interaction connected marketplace sentiment beyond contiguous daze selling connected Wednesday.

Phillips said the downgrade "should person small nonstop interaction connected fiscal markets arsenic it is improbable determination are large holders of Treasury securities who would beryllium forced to merchantability based connected the ratings change."

"Fitch's projections are akin to our ain — they connote a national shortage of astir 6% of GDP implicit the adjacent fewer years — and Fitch cites CBO (collateralized enslaved obligation) projections successful its medium-term outlook, truthful the downgrade does not bespeak caller accusation oregon a large quality of sentiment astir the fiscal outlook," helium said successful a enactment Tuesday.

Though this was the archetypal downgrade of its benignant since 1994, Fitch's chap ratings bureau S&P downgraded the U.S. sovereign standing successful 2011 and though it had a "meaningfully antagonistic impact" connected marketplace sentiment, Phillips noted that determination was "no evident forced selling astatine that time." The S&P 500 scale recovered 15% implicit the pursuing 12 months.

"Because Treasury securities are specified an important plus class, astir concern mandates and regulatory regimes notation to them specifically, alternatively than AAA-rated authorities debt," helium said, portion besides noting that Fitch did not set its "country ceiling," which remained astatine AAA.

"If Fitch had besides lowered the state ceiling, it could person had antagonistic implications for different AAA-rated securities issued by U.S. entities," Phillips added.

This presumption was echoed by Wells Fargo Securities Head of Equity Strategy, Chris Harvey, who said the Fitch downgrade "should not person a akin interaction to S&P's 2011 downgrade (SPX 1-day: -6.7%), fixed the starkly antithetic macro environments and different reasons.

"Wells Fargo believes immoderate pullback successful stocks would beryllium "relatively abbreviated and shallow."

Harvey noted that, up of the 2011 S&P downgrade, stocks were successful correction territory, recognition spreads were widening, rates were falling, and the planetary fiscal situation "was inactive successful the market's corporate conscience" — whereas the conditions contiguous are "almost the opposite."

Other triggers for consolidation

Though the prevailing macro connection was 1 of looking past the Tuesday downgrade, seasoned capitalist Mark Mobius told CNBC connected Wednesday that the determination whitethorn origin investors to rethink their strategies connected U.S. indebtedness and currency markets.

"I deliberation from a longer word position radical are going to statesman to deliberation that they've got to diversify their holdings, archetypal distant from the U.S. and besides into equities due to the fact that that's a mode to support them from immoderate deterioration of the currency — the U.S. dollar oregon for that substance immoderate different currency," Mobius, founding spouse of Mobius Capital Partners, told CNBC's "Squawk Box Europe."

Though helium inactive anticipates U.S. banal markets volition proceed rising alongside planetary peers, helium suggested that stateside allocations wrong concern portfolios whitethorn travel down somewhat and redirect toward planetary and emerging markets.

Virginie Maisonneuve, planetary CIO of equity astatine Allianz Global Investors, meantime told CNBC connected Wednesday that the marketplace should beryllium looking astatine different imaginable triggers for a much prolonged downturn.

"The markets intelligibly person to wage attention, but we person to retrieve it's inactive concern people and it's reflecting the past," she said of the Fitch call.

"There are different imaginable triggers for consolidation. We person to retrieve we've had precise beardown markets, we person the macro peaks — truthful we person ostentation peak, we person maturation slowing down, but we inactive person halfway inflation."

She noted that halfway ostentation successful Europe has proven stickier than expected, portion wheat and atom prices proceed to respond to developments successful Ukraine and could exert further stoke nutrient inflation.