Dollar, US Stocks Futures Weaker on US Downgrade: Markets Wrap
(Bloomberg) — The dollar edged lower along with US equity-index futures after Moody’s Ratings stripped the US government of its top credit rating, citing a ballooning budget deficit it said showed little sign of narrowing. Gold gained 1.2%.
US stock futures declined 0.7% after the ratings were slashed one level to Aa1 from Aaa Friday. A gauge of the dollar weakened 0.3% and Treasuries were little changed at the open Monday. Shares in Japan, Australia and South Korea were weaker at the open.
The downgrade risks reinforcing Wall Street’s growing worries over the US sovereign bond market and revives the ‘Sell America’ concerns triggered by President Donald Trump’s trade war. The ratings cut comes as Capitol Hill debates even more unfunded tax cuts and the economy looks set to slow as Trump upends long-established commercial partnerships and re-negotiate trade deals.
“The downgrade may indicate that investors will demand higher yields on Treasuries,” said Tracy Chen, a portfolio manager at Brandywine Global Investment Management. While US assets rallied in response to previous US downgrades from Fitch and S&P, “it remains to been seen whether the market reacts differently as the haven nature of Treasury and the US dollar might be somewhat uncertain.”
In Asia, traders will get a slew of Chinese data, including retail sales and industrial production, which will indicate the health of the world’s second largest economy. The Chinese yuan has climbed this month while the benchmark Shanghai Shenzhen CSI 300 Index has jumped 3.1%, its best month since September amid a cooling in US-China trade tensions.
“Sentiment towards the Chinese currency has sharply improved in recent weeks thanks to a breakthrough in US-China trade talks” and the data dump is unlikely to materially impact the yuan, Commonwealth Bank of Australia strategists including Joseph Capurso wrote in a note to clients.
Meanwhile, China shrank its holdings of US Treasuries in March, with the UK replacing it as the No. 2 overseas owner.
‘Fiscal Metrics’
Moody’s joined Fitch Ratings and S&P Global Ratings in grading the world’s biggest economy below the top, triple-A position. The one-notch cut comes more than a year after Moody’s changed its outlook on the US rating to negative. The credit assessor now has a stable outlook.
“While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” Moody’s wrote in a statement.
US Treasury Secretary Scott Bessent downplayed concerns over the US’s government debt and the inflationary impact of tariffs, saying the Trump administration is determined to lower federal spending and grow the economy.
Michael Schumacher and Angelo Manolatos, strategists at Wells Fargo & Co., told clients in a report that they expect “10 year and 30 year Treasury yields to rise another 5-10 basis points in response to the Moody’s downgrade.”
A 10 basis point increase in the 30-year yield would be enough to lift it above 5% to the highest since November 2023 and closer to that year’s peak, when rates reached levels unseen since mid-2007.
European Central Bank President Christine Lagarde said in an interview published with La Tribune Dimanche on Saturday that the dollar’s recent decline against the euro is counterintuitive but reflects “the uncertainty and loss of confidence in US policies among certain segments of the financial markets.”
In commodities, gold jumped 1% on Monday as traders responded to the fresh uncertainty surrounding US economic outlook. Oil fluctuated between gains and losses.
Stocks
- S&P 500 futures fell 0.7% as of 9:06 a.m. Tokyo time
- Japan’s Topix fell 0.2%
- Australia’s S&P/ASX 200 fell 0.2%
- Euro Stoxx 50 futures rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.2% to $1.1189
- The Japanese yen rose 0.3% to 145.20 per dollar
- The offshore yuan was little changed at 7.2082 per dollar
Cryptocurrencies
- Bitcoin rose 2.5% to $106,733.58
- Ether rose 4.5% to $2,501.58
Bonds
- The yield on 10-year Treasuries was little changed at 4.48%
- Australia’s 10-year yield advanced three basis points to 4.48%
Commodities
- West Texas Intermediate crude rose 0.1% to $62.57 a barrel
- Spot gold rose 1.2% to $3,240.69 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Matthew Burgess.
©2025 Bloomberg L.P.