Stocks, dollar drop after US loses last triple-A credit rating

Daily Tribune

20-05-2025

Stocks fell with the dollar yesterday after Moody's removed the United States' last gold-standard sovereign bond rating over a debt pile that could balloon further.
The move dealt a blow to markets, which had enjoyed a healthy run-up last week after Washington and China hammered out a deal to temporarily slash tit-for-tat tariffs.
US stocks opened lower, led by the tech-heavy Nasdaq, which fell more than 1%.
That mirrored losses in Asia, where Tokyo and Hong Kong closed down, and in afternoon European trading.
The dollar slid nearly 1% against the euro and also fell heavily against the British pound and yen.
The European single currency powered ahead despite the European Union cutting its 2025 growth forecast for the eurozone, blaming the move on US tariffs.
Focus was also on a landmark EU-Britain summit five years after the latter's acrimonious exit from the neighbouring bloc.
British Prime Minister Keir Starmer said leaders had agreed a 'win-win' deal tightening defence and trade ties, which his office said would add nearly £9 billion ($12 billion) to the British economy by 2040.
Events across the Atlantic weighed on oil prices, which were down almost 1.5%.
Gold, seen as a safe haven investment, jumped more than 1% in value.
'It seems like the 'Sell America' narrative is making a comeback' after the Moody's downgrade, said Fawad Razaqzada, market analyst at City Index and FOREX.com.
The downgrade, which came late Friday, is 'sending tremors through some global markets,' he said.
'Investors are increasingly jittery about the cost implications of higher borrowing, especially given the backdrop of (US President) Donald Trump's ongoing trade disputes and proposals for unfunded tax cuts.'
Debt pile
After a markets rout sparked by Trump's Liberation Day tariffs bazooka, investors have in recent weeks raced back to buy up beaten-down stocks as the White House tempered its hardball tariff approach.
However, selling returned after Moody's cut its rating on US debt to Aa1 from Aaa, noting '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 added that it expected federal deficits to widen to almost nine% of economic output by 2035, from 6.4% last year.
Analysts said the cut -- which follows S&P in 2011 and Fitch in 2023 -- could indicate investors will want higher yields on Treasuries, pushing up the cost of government debt. Yields rose on Monday.
Treasury Secretary Scott Bessent dismissed the announcement, saying it was 'a lagging indicator' and blaming Trump's predecessor, Joe Biden.
The news added to a frustrating time for Trump as his 'big, beautiful bill' to extend tax cuts from his first term and impose new restrictions on welfare programmes has faced scrutiny in the Republican-controlled Congress.
Independent congressional analysts say the package would add more than $4.8 trillion to the federal deficit over the coming decade.
The bill cleared a key hurdle Sunday, progressing out of the House Budget Committee after several Republican lawmakers holding up the legislation dropped their opposition.
But Republican Congressman French Hill, who chairs the House Financial Services Committee, said the Moody's downgrade 'is a strong reminder that our nation's fiscal house is not in order'.