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CNBC Daily Open: Will the U.S. lose its AAA Credit Rating?

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Stocks extended their downward slide as the debt limit debacle continues to worry investors.

What you need to know today

  • Negotiations over the U.S. debt limit are “making progress,” said House Speaker Kevin McCarthy after yesterday’s discussion at the White House. But Representative Steve Scalise told members they needn’t stay in Washington over the weekend to vote on a deal, suggesting negotiations will continue into next week.
  • The inability of U.S. lawmakers to reach a deal has caused Fitch Ratings to put the country’s AAA credit rating on negative watch. However, Fitch expects Washington to resolve the issue before June 1, when the U.S. government could start missing payments.
  • U.S. markets closed lower Wednesday, with the Dow Jones Industrial Average falling for a fourth consecutive day as debt limit talks remained inconclusive. Asia-Pacific stocks traded lower Thursday. Hong Kong’s Hang Seng Index fell 2%, leading losses in the region and sinking to a two-month low.
  • Nvidia shares popped an eye-watering 24.7% in extended training after it projected that sales for the current quarter will hit $11 billion — far more than the expected $7.15 billion. The semiconductor company also beat expectations for its first-quarter earnings and revenue.
  • The PC sector isn’t faring as well as the semiconductor sector. Lenovo, the world’s largest PC maker, posted a 24% year-over-year drop in first-quarter revenue. Still, the company’s CFO is optimistic that its non-PC business, such as in infrastructure and services, will help buoy the company.
  • PRO Summer break is approaching in the United States — and that means the traveling season is about to kick off. CNBC screened leisure and entertainment stocks to find out which have the potential to rise at least 10%, and are recommended by around 60% of analysts.

The bottom line

Stocks extended their downward slide as the debt limit debacle continues to worry investors.

The S&P 500 slid 0.73%, the Dow dropped 0.77% and the Nasdaq Composite gave up 0.61%.

Meanwhile, the Cboe Volatility Index (VIX), which measures investors’ expectations of how volatile S&P prices will be within 30 days, broke the 20-mark barrier. While that figure is the highest since May 4, signaling increased fears and uncertainty in the market, it still isn’t as high as it was during the banking turmoil in March. Investors, then, are fearful, but still hopeful U.S. lawmakers can still reach a deal.

But with exactly a week before June 1 — the date when Treasury Secretary Janet Yellen warned the White House might run out of money to repay its debts — time’s running short.

There have already been consequences. Fitch Ratings just placed the United States’ AAA credit rating on negative watch. Short-term Treasury yields have shot higher recently and are brushing against the 6% mark. If the U.S. defaults and is downgraded, short-term bond prices — which move inversely with yields — could drop even more drastically. (A side note: Long-dated Treasurys tend to increase in price during crises, as investors still see them as a safe asset.)

Dow futures slipped on the credit rating news, but Nasdaq 100 futures jumped on Nvidia’s bright forecast. The semiconductor company added $220 billion to its market capitalization in extended trading — that’s equivalent to the entire market cap of Advanced Micro Devices, noted CNBC’s Robert Hum and Sarah Min. But they also warned investors that Nvidia’s overnight gains might be a mirage, like computer-generated graphics, and vanish in regular trading.

Source: CNBC