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Morning Report: Fitch downgrades the US credit rating


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Stocks are lower this morning after Fitch downgraded the US’s sovereign credit rating. Bonds and MBS are down.

Credit rating firm Fitch downgraded the US sovereign debt rating from AAA to AA+ yesterday. “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 that has manifested in repeated debt limit standoffs and last-minute resolutions.”

Fitch sees US GDP growth slowing to 1.2% in 2023 and 0.5% in 2024. They expect a mild recession starting in Q4 and lasting into Q1. They also see one more Fed rate hike in September.

Note that S&P downgraded the US 12 years ago, so this is not as big of an event as the press is making it out to be.

Mortgage applications fell 3% last week as purchases and refis fell by the same amount. “Mortgage rates edged higher last week, with the 30-year fixed mortgage rate’s increase to 6.93 percent leading to another decline in overall applications,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The purchase index decreased for the third straight week to its lowest level since the beginning of June and remains 26 percent behind last year’s levels. The decline in purchase activity was driven mainly by weaker conventional purchase application volume, as limited housing inventory and rates still close to 7 percent are crimping affordability for many potential homebuyers. The refinance market continues to feel the impact of these higher rates, and applications trailed last year’s pace by over 30 percent with many homeowners not looking for refinance opportunities.”  

The economy added 324,000 jobs in July, according to the ADP Employment Report. As usual, leisure and hospitality jobs accounted for the bulk of the pickup. Wage growth continues to be decent, with job stayers reporting an increase of 6.2% YOY. Job changers saw an increase of 10.2%. That said, the increase for job stayers was the lowest since November 2021. The Street is looking for an increase of 200,000 jobs in Friday’s Employment Situation Report.

Rithm capital, formerly known as New Residential, announced second quarter earnings that were just about the company’s best ever. “Rithm had one of its best quarters ever,” said Michael Nierenberg, Chairman, Chief Executive Officer and President of Rithm Capital. “We had near record earnings, grew book value, acquired $1.4 billion of consumer loans and grew our SFR business with the acquisition of 371 units. Subsequent to quarter end, we announced the acquisition of Sculptor Capital Management. This acquisition helps accelerate our growth in the alternative asset management space, as Sculptor’s $34 billion of AUM complements Rithm’s $7bn of permanent equity capital and $30+ billion balance sheet. With the introduction of new capital rules being instituted on banks and the highest level of rates seen in 20+ years, the investing environment has not been this good in years.”

ADP: Private Employment Increased 324,000 in July

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