Moody’s downgrade weighs on US markets after bullish week

Asian Pacific stock indices drifted lower on Monday as regional investors responded to the US credit downgrade. The Japanese Nikkei lost around 0.7%, while markets in China were more subdued into the close. Weaker-than-expected Chinese retail sales added to the cautious mood, leaving local indices little-changed despite the global backdrop.

European stock indices were mixed, but with a negative tone, in early trade. Despite the downside pressure from the US downgrade, the German DAX continued to hover near all-time highs, suggesting some underlying resilience amid global uncertainty.

Source: TN Trader

The US dollar began the week on the defensive, with the downgrade weighing on investor appetite. The euro was the major beneficiary from dollar weakness. The single currency also got a lift following news of a post-Brexit reset deal between the UK and the European Union.

Source: TN Trader

The Japanese yen also made gains, and the USD/JPY pulled back below 145.00, benefiting from a risk-off tilt across global markets. Investor focus now shifts to how the currency landscape will respond to shifting sentiment and what the broader macro backdrop might mean for dollar positioning going forward.

Gold prices rallied to start the week, finding renewed support as risk appetite faded. After suffering its worst weekly drop since November, the yellow metal is back in demand as investors seek safety following the US downgrade.

Silver is also on the rise, although gains remain relatively contained compared to gold. Still, both metals are clearly responding to the change in tone across markets and benefiting from the renewed flight to quality.

Oil prices were lower in early trade. A persistent supply overhang remains the key factor keeping a lid on crude prices, with the outlook for global demand growth still shaky. Despite recent attempts to rally, oil continues to struggle against fundamental pressures.

Meanwhile, Natural Gas dropped sharply, breaking below the 3 BTU level in early trade. The decline reflects broader commodity weakness and suggests that any recovery in energy markets remains fragile for now.

Cryptocurrencies were generally lower in early trade, pulling back after recent strength. The move comes as investors reassess their risk tolerance, considering Moody’s US downgrade and broader market caution.

Bitcoin and its peers have not been immune to the shifting sentiment, with the selloff indicating that the sector remains closely tied to overall risk dynamics. After gaining momentum in recent weeks, the crypto space is now facing headwinds as traders take a more cautious approach.

The VIX jumped over 5% to begin the week, with the front-month contract pushing over 20. The rise in the so-called fear gauge signals a return of investor anxiety following the credit rating downgrade. The move higher highlights the renewed sense of uncertainty that has crept into markets.

With traders keeping a close eye on macro developments, the VIX serves as a timely barometer of sentiment and remains worth watching.

Source: TN Trader

Today’s economic calendar is light, giving markets a moment to digest the downgrade and reassess direction. Attention will turn to speeches from several Federal Reserve officials scheduled throughout the day. These could shed light on how policymakers are interpreting recent developments.

The week ahead features more critical data points, including flash Manufacturing and Services PMIs and UK CPI, which could help shape global policy expectations.

Over the weekend, President Trump once again grabbed headlines, urging retail giant Walmart to absorb tariffs and avoid passing costs onto consumers. He also announced his intention to speak with Russian and Ukrainian leaders, as well as NATO allies, about peace efforts, underscoring his continued influence on geopolitics.

Elsewhere, Chinese companies are reportedly considering stock listings in Singapore, suggesting strategic shifts in capital raising. In Europe, Barclays now forecasts three rate cuts from the ECB by year-end, while former President Biden’s prostate cancer diagnosis is also making news.

The Moody’s downgrade has cast a shadow over equity markets following last week’s strong rally. Risk aversion, a weaker dollar, and a rebound in safe-haven assets like gold mark the start of the new trading week. Crypto and oil have pulled back, while the VIX’s jump underscores a rise in investor caution.

For now, markets are recalibrating, and the tone remains fragile. With a quiet start to the calendar and Fed commentary on deck, traders will be looking for reassurance or risk signals as the week progresses.