Trump's DC Arraignment; Stocks Spooked by Fitch Downgrade

Good morning.

I'm Nathan Hager and I'm Karen Moscow. Here are the stories we're following today.

First, we have the latest on the legal entanglements of Donald Trump. The former president is set to appear in a Washington federal court today to face charges he conspired to obstruct the twenty twenty presidential election. Bloomberg's Amy Morris has details from our ninety nine one newsroom in Washington.

The hearing will likely be short, with Trump's attorneys doing most of the talking. Trump is expected to be arraigned in person. That means he'll have to enter an initial plea. US Marshall Service spokesman Drew Wade says Trump will be processed first. He'll have his fingerprints taken digitally. He'll be required to provide a Social Security number, date of birth, address, and other personal information, but there will be no mugshot since he is easily recognizable and there are many photographs

Right, Amy, thank you about the latest charges against former President Trump may be worse than Watergate. That's what we're hearing from someone with first hand knowledge of the subject. John Dean served as White House counsel for President Nixon during Watergate.

Nixon's Watergate was like a lightning bug. Trump's behavior is like a lightning storm, and it it threatens the entire structure of our democracy.

Former White House counsel John Dean was a guest on Bloomberg's Sound on Catch the Show weekdays at one pm Eastern on Bloomberg Radio or listen on demand wherever you get your podcasts.

And with former President Trump's arraignment today, Karen us Capitol police are preparing for large and possibly rowdy crowds. Bloomberg's Ed Baxter has that part of the story.

The Capital, of course, is a bit on edge for obvious reasons. Capitol Police had a report of an active shooter yesterday and this time around. Police Chief Thomas Manger says they're in coordination with their partners. We've been talking about this for a couple of weeks now.

We've had a couple of phone calls today, so yeah, we're prepared.

Trump will head into the courthouse through an underground entrance and may not even be seen during the entire proceeding. In San Francisco, I'm at Baxter Bloomberg Daybreak.

All right, ed, thank you. Meanwhile, we're learning more about the proposed plea deal between Hunter Biden and prosecutors A judge as unsealed the proposal. It shows Hunter Biden earned more than four million dollars from a Ukrainian energy company, a Chinese private equity firm, and other sources. That's over the course of two years, where the agreement says he descended deeper into substance abuse. A lawyer for Biden did not immediately respond to our request for comment.

Let's turn back to the markets now, Karen, where much of the commentary remains focused on this week's downgrade of the US credit rating. Now, two former Treasury secretaries are flagging concerns over the nation's long term fiscal challenges. Timothy Geidner says the US has enormous capacity to deal with its budget deficit. The man he succeeded, Hank Paulson, agrees, but Paulson says the government needs to act.

We're a rich country and We've got time to deal with it, but we need to do some things in the next few years to change that trajectory.

Hank Paulson and Timothy Geidner spoke to our David Weston on Bloomberg's Wall Street Week. You can catch the entire conversation tomorrow at six pm Wall Street Time on Bloomberg Television, or subscribe to the Bloomberg Wall Street Week podcast. It's available on Apple, Spotify, or anywhere else you listen and.

Nathan, the news from Fitch Ratings appears to be putting the brakes on this year's stock rally. Bloombergs John Tucker joins us with the details. Good morning John, Good morning Careen.

The S and P five hundred racked up its worst day since April, falling one point four percent. The high flying Nasdaq one hundred registered a two percent sell off. It was a confluence of events fueling the sell off. There was the Fitch downgrading US debt, then a hotter than expected jobs report from ADP that fueled inflation concerns, and then the government announced it would have to sell more debt to pay the cost of a ballooning deficit that also had treasuries sell off push tenyure yields to

All right, John, thank you.

Overseas today, we are following the latest policy decision from the Bank of England. Economists anticipate at least a quarter percentage point increase, with a strong chance the central Bank hikes as much as fifty basis points. That decision comes at seven am Wall Street time.

And we're also following earnings, Nathan. This afternoon, we get results from Apple and Amazon. Apple is expected to report its third consecutive year over year revenue decline, while traders are watching Amazon for word on growth in its cloud computing business.

Well, we've already got earnings, Karen. From one big tech heavyweight, Qualcomms forecasts disappointed, and the shares right now are down eight and a half percent. We get the details from Bloomberg's Charlie Pellett.

It indicates that demand for mobile devices remains weak even as the industry emerges from a glot Qualcomm said sales will be eight point one billion to eight point nine billion dollars. The midpoint of that ranges well below the eight point seventy nine billion dollar average estimate compiled by Bloomberg. The outlook renews concerns about a smartphone industry contending with its worst downturn in years. In New York. Charlie Pallet Bloomberg Daybreak.

All right, Charlie, thanks well. Shares A robin Hood are also feeling the pain this morning. They're down six percent after monthly active users missed estimates. Robin Hood reported at revenue that outperform, but also said that crypto revenue fell forty seven percent from the prior year. Time Now for a look at some of the other stories making news around the world. For that, we're joined by Bloomberg's Amy Morris Saming. Good morning, Good morning, Karen.

The State Department has ordered non emergency US government employees and eligible family members to leave the US embassy indies after a coup in that country, and now comes word the Wagner Mercenary Group is operating in nearby Molly. State Department spokesman Matthew Miller.

We will know how he's being treated.

We will know if he's if he's eaten, we will know if he's being tortured, We'll know if.

He's Any attempt by the military leaders in Niger to bring the Wagner forces into Nizer would be a sign yet another sign that they do not have the best interests of the Nigerian people at heart.

State Department spokesman Matthew Miller says they are also advising US citizens to not travel to Nizer. It's been more than two weeks since twenty three year old US Army Private second Class Travis King ran across the demilitarized Zone

An aide says Governor Murphy is cutting short his Italy vacation and will return to the state later this afternoon. Lieutenant Governor Sheila Oliver died this week from an undisclosed medical condition. She'd been serving as acting governor while Murphy was away. She was the first black woman to hold statewide elected office in New Jersey, winning the vote alongside Murphy in twenty seventeen and again in twenty twenty one.

Some military veterans are suing to get access to infertility treatments. The lawsuits claim the Defense Department and the Department of Veterans' Affairs are making it close to impossible for veterans to get infertility treatments. CBS reports the law suits seek to obtain in vitro fertilization coverage for military service members and veterans who don't fit the Veterans' Affairs definition of infertility

Karen sor right, Amy, Thank you. It is five ht nine on Wall Street.

Time.

Now for the Bloomberg Sports Update. Here's John stash Hour, John Hearin.

The Big Ten Conference used to have ten schools, then they add at Penn State, then Nebraska next to join Rutgers and Maryland, so the conference currently actually has fourteen schools and USC and UCLA are set to join the Big Ten next year, and now the Big Ten is exploring further expansion talking to Washington and Oregon since the PAC twelve seems to be on the verge of crumbling with the departures of USC, ECLA, and now Colorado is

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Fitch has downgraded the US credit rating and it is a move that rippled through markets yesterday and had many commentators shaking their heads asking why. To get the answer and the thinking behind the move, Let's hear from one of the people who made the decision. Richard Francis is co head of America's sovereign ratings at Fitch. He says the downgrade was due to weakening US fiscal metrics and governance. Richard Francis of Fitch sat down with Bloomberg Schinelli Bassic

Now, it's worth talking a little bit about the criteria you set out about a year ago about what it would take to get to a downgrade, because some of the things have changed in terms of the picture.

Let's start with.

The rise in debt to GDP ratio. The significant and sustained rise did not be so significant or sustained, So why is that not factored in here in terms of the decision made More recently?

Well, the dept bubble has been rising quite significantly. If you look at before the Great Financial Crisis in two thousand and seven, debt to GDP was at below sixty percent. Now it's one hundred and thirteen percent. The one hundred and thirteen percent is almost three times higher than the triple A median, and it's more than twice as high as.

The double A median.

So you've had sustained, you know, deterioration over the years.

Yes, debt to G peaked after during the pandemic of one.

Hundred and twenty percent and has come down, and that's because you know, inflation and high ennmal GDP growth and also the you know, the withdrawal of the STEM lists, especially last year. But now we're seeing that levels starting to rise again, and we do not see them stabilizing that we just see them continuing to rise in the next three years and probably more of the medium term.

And debt side.

I'd love for you to respond here to Treasury Secretary Janet Yellen who said that she disagrees with your decision and that it is based on outdated and arbitrary based on outdated data. I'm sorry. So, if it is indeed base on outdated data, do you agree with that and does that change the way that you look at the picture moving forward.

I understand why she's not happy with it with a downgrade.

That makes sense. I think what she.

Is referring to, specifically, our governance indicators that we use from the World Bank.

They come out once the year. They tend to be a little bit backward looking.

We use it because it's we have that data for every country in the world, and it comes out once a year, and we're able to use it for comparison's sake, and not.

Just say a finish coming up with us. You know, this underlying governance. So yes, it's a little bit backward looking.

But I think more importantly, over the last two decades, you've seen again a deterioration and even these indicators, you know, the United States target started kind of at the top of governance, toward the top at ninety one percentile, and now it's down to seventy eight percentile. So again you've seen a kind of continuous deterioration over the last two decades.

What does this mean for the risk free rate? Here's the idea here is that treasuries are not as risk free as they had been with a gold standard to LA rating. Here, what does this mean for broader markets, and do other countries do other security space for the risk of downgrade given how much the treasury market had underpinned the financial markets.

You know, I think one of the rating strengths of the US, the other key rating strength.

In addition to the dynamic economy that I mentioned earlier, is the the reserve currency status of the United States.

It's on.

It's unparalleled. There's no other there's not really much of an alternative. The treasury markets teep and liquid, and this gives the US government tremendous financing flexibility. And I think that is a very key rating factor. And the other thing I would have to mention is, you know, double A plus is the second highest rating we have.

It's not it's not a low rating. It's not, you know, it's still a very high rating. It's just me.

We're just saying that we do not think that the underlying pistol story and the governance, uh, you know, it's compatible with triple A anymore.

This is Bloomberg Daybreak Today, your morning brief on the stories making news from Wall Street to Washington and beyond.

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I'm Karen Moscow. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak