Moody’s downgrade weakens stocks within Asia and Europe

• Moody’s downgrade weakens stocks within Asia and Europe.
• Gold on the rise as debt fears grow.
• Fed speakers dominate as Trump criticises “too late Powell”.

European markets are heading lower, following on from their Asian counterparts as the Nikkei, Hang Seng, ASX 200, and Nifty all lost ground in the wake of Moody's US credit rating downgrade. Friday’s downgrade highlights the underlying risk that is being perceived around the US economy even in the face of improved trade relationships, with bond yields rising further in the face of growing debt in the US and around the Western world. Notably, this downgrade goes some way to highlighting the underlying narrative around dollar weakness, with the dollar index falling back towards the 100 handle after the post US-China trade deal pop up to 102 last Monday.

Gold prices are on the rise once again today, as the precious metal builds on the rebound seen after Thursday’s low of $3122. Prices have gained over $100 since then, and the Moody’s downgrade does highlight the reasoning behind the move away from US treasuries and towards gold. With Trump seeking to pass a “big, beautiful bill” that will ramp up spending and cut taxes, the deficit is only going to grow from here. For markets this growing concern around the stability of the US finances in a year that the US need to find buyers for roughly $7 trillion of their debt, it is obvious why traders are questioning whether the Fed will ultimately need to step in to resolve the demand shortfall.

Looking ahead, today sees a raft of appearances from Fed members, coming hot off the heels of yet another Trump barrage over “too late Powell’s” need to cut rates. Markets have grown increasingly sceptical over the Fed’s willingness to slash rates this year, with the US-China trade deal and stronger jobs report moving us into a position where markets price 2 more cuts this year. With earnings season and trade fears largely cast aside for at least a month, traders will become increasingly focused on the pathway for rates and bond yields. While April data will be cast aside by many given than the China tariffs have been slashed, they do provide a warning sign of what could be around the corner if deals aren’t reached within the 90-day period. Bessant has already started to warn that reciprocal tariffs could yet come back into play for countries that fail to find an agreement within that three-month timeframe, highlighting the fear that could begin to come into play if we move forward without regular trade breakthroughs.