Global markets kicked off the week on a jittery note following Moody’s decision to lower the United States’ sovereign credit rating from AAA to Aa1, citing concerns over rising government debt and a widening fiscal deficit. While the outlook was revised to Stable from Negative, the move sent ripples across equities, currencies, and commodities.

Immediate Market Reaction

US equity futures dropped sharply in response, with the S&P 500 (ES) slipping 1.2% in overnight trading. European bourses also opened lower, echoing concerns about global economic stability.

The US dollar weakened, shunned by investors wary of deteriorating fiscal credibility. In contrast, the British pound found strength, buoyed by optimism surrounding a potential UK-EU “reset” deal that could ease post-Brexit tensions.

Bonds & Commodities

It was a mixed session for bonds. US Treasuries had a “moody” start, with investors digesting the downgrade, while UK Gilts lagged, partly due to Brexit-related developments and positioning ahead of a 30-year syndication.

On the commodities front, oil traded lower in a downbeat risk environment. However, precious metals rallied, with spot gold climbing toward USD 3,250/oz as investors sought safe havens amid market uncertainty.

Policy Developments & Political Tensions

In Washington, the House Budget Committee approved President Trump’s tax cut bill, paving the way for a potential floor vote later this week. Meanwhile, Treasury Secretary Bessent issued a stern warning, saying countries not negotiating trade deals in good faith will receive letters indicating US tariff rates—likely pegged to April 2nd levels.

What to Watch

Looking ahead, markets will keep an eye on the US Leading Index Change and further developments in EU-UK negotiations. Several key Federal Reserve speakers—including Bostic, Williams, Logan, and Kashkari—are scheduled to speak, which could offer further clues on the central bank’s outlook. Canadian markets are closed for a holiday.