The Day at a Glance | November 13 2023

*Moody’s lowered the United States´ credit rating outlook. 

*US lawmakers are working to avert a government shutdown before the November 17th deadline.

*The health crisis has worsened in the Gaza Strip, with thousands of patients and medical personnel seeking shelter from constant Israeli airstrikes, as reported by aid agencies and journalists.

*The Central Bank of Mexico will conduct an extraordinary auction on November 15th for monetary regulation purposes. The operation involves the issuance of Treasury Certificates (Cetes) with maturities between 196 and 448 days, as well as Federal Government Development Bonds (Bondes F) with maturities between 357 and 1,071 days, for a total amount of up to 30 billion pesos.

Economic environment

Credit rating agency Moody´s announced the downgrade of the US outlook from stable to negative. The decision resulted from the agency’s assessment that the fiscal outlook of the US is increasingly risky, and this risk can no longer be fully offset solely by the sovereign’s credit strength. Moody’s also noted in its statement that in an environment characterized by higher interest rates and without “effective fiscal policy measures to reduce public spending or increase revenues,” fiscal deficits will remain very large, “significantly weakening the affordability of debt.” However, the agency continues to expect that the US maintains its “exceptional” economic strength, acknowledging the high institutional robustness and governance of the country, particularly supported by the effectiveness of monetary and macroeconomic policies. Additionally, Moody’s pointed out that the “unique and central” role of the US dollar and the Treasury bond market in the global financial system gives the US an extraordinary financing capacity, significantly reducing the risk of a sudden spiral in financing costs, which is particularly relevant in a context of high debt and weakening debt affordability. Thus, the agency reiterated the United States´ credit rating at “Aaa.” The announcement comes days after the US Treasury reported that it will borrow $112 billion in quarterly refunds, and November 17^th is a deadline for US Congress to reach an agreement and pass spending bills to avoid a government shutdown. While Moody’s currently maintains the US rating at its highest scale, the deterioration in the outlook opens the door to a possible future downgrade, as Fitch did in August to “AA+,” and S&P – also “AA+”. Lastly, regarding the Government funding extension resolution approved by US Congress on September 30^th, expiring this Friday, the new Speaker of the House, Mike Johnson, informed his caucus of his action plan, which does not include the significant cuts requested by the more conservative wing of the party but instead extends funding at its current levels. It´s worth noting that it also doesn’t include additional aid for Israel or Ukraine.