Asian markets slide as US loses last triple-A credit rating; Wall Street rally stalls, dollar and futures dip

Asian stock markets slid on Monday and the US dollar weakened after Moody’s downgraded the United States’ last remaining triple-A sovereign credit rating, triggering renewed investor concerns about Washington’s rising debt burden. Moody’s cut the rating from Aaa to Aa1, citing “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.” It warned US deficits could swell to nearly 9% of GDP by 2035, up from 6.4% last year, driven by ballooning interest payments, entitlement spending, and relatively weak revenue. The downgrade follows similar moves by S&P in 2011 and Fitch in 2023. Analysts noted the cut could increase yields on US Treasuries, raising borrowing costs for the federal government. Despite the development, US Treasury Secretary Scott Bessent downplayed the move, calling it “a lagging indicator” and blaming the previous administration. “We didn’t get here in the past 100 days,” he told CNN. “It’s the Biden administration and the spending that we have seen over the past four years that we inherited, 6.7 percent deficit-to-GDP, the highest when we weren’t in a recession, not in a war.” White House communications director Steven Cheung also lashed out on social media, targeting Moody’s Analytics chief economist Mark Zandi. “Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung posted on X. The timing of the downgrade was politically sensitive, as President Donald Trump’s proposed tax and welfare bill failed to pass in Congress. Independent analysts estimate the package could have added over $4.8 trillion to the deficit over 10 years. Several Republican fiscal hawks opposed the legislation, prompting House Speaker Mike Johnson to promise another vote later this week. The financial markets, which had enjoyed gains last week after the US and China agreed to temporarily reduce trade tariffs, reacted swiftly. Hong Kong’s Hang Seng dropped 0.6% to 23,211.29, while Tokyo’s Nikkei 225 slipped 0.4% to 37,617.63. Shanghai’s Composite fell 0.2% to 3,361.55. Other markets in Seoul, Singapore, Sydney, Wellington, Taipei and Jakarta also closed lower. US futures were also down. Chinese retail data added to the gloom. April’s retail sales growth came in below expectations at 5.1%, reinforcing concerns over domestic demand despite recent stimulus measures. However, factory output showed some resilience with better-than-expected figures. Gold, benefiting from safe-haven demand, rose to $3,225 per ounce. The dollar slipped against major currencies, trading at 145.09 yen, while the euro rose to $1.1180. Still, some analysts believe the market impact of the downgrade will be limited. “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,” said Ray Attrill of National Australia Bank. Stephen Innes of SPI Asset Management added, “Moody’s may have dropped the mic, but for equity traders, the real test this week will be Main Street… the downgrade is more psychological than mechanical.” Key earnings from major US retailers like Target, Home Depot, and Lowe’s are expected later this week and could provide further insight into consumer strength amid economic uncertainty.

Key figures at around 0230 GMT