US equity-index futures dropped and Treasuries yield curve steepened 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.
Contracts for the S&P 500 dropped 1% and those for the Nasdaq 100 declined 1.3% as the ratings were cut one level to Aa1 from Aaa Friday.
A gauge of the dollar weakened 0.2%. Asian and Chinese stock indexes fell even as China’s industrial output expanded faster than expected in April.
Bullion edged up 0.2% with appetite for the haven asset boosted by mounting concerns about the US economic outlook and budget deficit.
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 rating cut comes as Capitol Hill debates even more unfunded tax cuts and the economy looks set to slow as Trump upends long-established partnerships and re-negotiates trade deals.
“Moody’s downgrade is more symbolic than a fundamental shift,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore.
