I would not sell US equities because of Fitch downgrade: Steve Englander, Standard Chartered Bank

economictimes.indiatimes.com:

Steve Englander, Global Head of G10 FX Research and North America Macro Strategy, Standard Chartered Bank, says the “equity markets were overenthusiastic over the last couple of months. I do not think that the Fitch reason is any reason for them to sell off. But if we are right that the US is going into a moderate recession, it is actually going to be good for risk appetite because it will lower the discount factor in all asset markets.

And it will be good for the US assets and global assets. I am not going to speak about whether or not this particular level is justified. It does seem a bit rich.

But I would not sell US equities because of the Fitch downgrade.”What do you make of the Fitch downgrade of the US rating?I think it has induced a panic in the market and it is a pure risk premium. It is not as if you see US CDS going up meaningfully. You are not seeing expectations of US Fed rates going up.

What you are seeing is just the market bidding up yields because this concern about the medium-term US fiscal stance is a new unknown in the equation. It is going to fade and the market will get past this once things settle down. Just as an example, Australia and New Zealand are AAA countries and their yields really did not benefit from the US being downgraded and their services currencies got pummelled.

So we are looking at a situation where the market is trying to digest this. But once it has digested, we will go back to where we were before the announcement came out.Do you think this 10-year move that we have seen already over the last one to two weeks is likely to continue?A lot of it is the market being concerned that the US is not going to slow down, that the US economy is not slowing down. It will last until we get