The news added to a frustrating time for the US president after Congress failed to pass his “big, beautiful Bill” to extend tax cuts passed in his first term and impose new restrictions on welfare programmes.
Independent congressional analysts say the package would add more than US$4.8 trillion to the federal deficit over the coming decade.
The Bill came up short in a key vote owing to several Republican fiscal hawks, with Congressman French Hill, who chairs the House Financial Services Committee, saying the downgrade “is a strong reminder that our nation’s fiscal house is not in order”.
However, it cleared a key hurdle on Sunday, progressing out of the House Budget Committee after several lawmakers holding up the legislation dropped their opposition, though one, Josh Brecheen, said it “still required tweaking”.
Tokyo, Sydney, Seoul, Singapore, Wellington, Mumbai, Bangkok and Taipei all fell, while US futures were also well down.
Equities in Hong Kong pared initial losses and Shanghai was flat as below-forecast Chinese retail sales figures reinforced the view that the world’s number two economy continues to struggle even after officials unveiled fresh stimulus measures. The reading offset figures showing factory output picked up more than expected.
London, Paris and Frankfurt fell as British and European Union chiefs meet for a landmark summit designed to usher in a closer relationship between the two sides, five years after Brexit.
Ahead of the “reset” summit, diplomats said they had resolved key hurdles to an agreement.
The dollar was also down against its peers and gold recovered some recent losses owing to its safe haven appeal, rising to US$3,223 per ounce.
National Australia Bank’s Ray Attrill said: “Moody’s actions will have zero impact on any investor’s ability or willingness to continue holding US Treasuries – that would likely require downgrades of four or five more notches.”
And SPI Asset Management’s Stephen Innes said investors would be more interested in upcoming data.
“Moody’s may have dropped the mic, but for equity traders, the real test this week will be Main Street,” he wrote in a note.
“We’re heading into a make-or-break retail earnings slate – Target, Home Depot, Lowe’s, TJX, Ralph Lauren all report – and this is where tariff theory collides with checkout-line reality.
“Yes, the S&P has clawed back 18 per cent since the ‘Liberation Day’ tariff blitz, but the consumer has been the market’s unsung hero. Now they’re about to be audited.”
