World stocks and dollar fall after US credit downgrade

Treasury yields have risen while US stock futures slipped with the dollar due to concerns about US debt and rising deficits after Moody's downgraded its US sovereign credit rating late on Friday.

European and Asian shares also fell on Monday as a mixed bag of Chinese data showed the economy was struggling, while the White House kept up rhetorical pressure on trade partners and American businesses.

Unease over the United States' $US36 trillion of debt mounted as Republicans got closer to passing a sprawling package of tax cuts, which some estimate could add $US3-5 trillion in new debt over the next decade.

"What Moody's sees, plain and simple, is that the ballooning debt is not being addressed," said George Lagarias, chief economist at Forvis Mazars. "The Republican mega bill is also contributing to rising yields."

The US 10-year yield rose 7 basis points to 4.510 per cent. The 30-year yield rose above five per cent for the first time since April 9, the day Trump paused most of his so-called reciprocal tariffs for 90 days.

US Treasury Secretary Scott Bessent used television interviews on Sunday to dismiss the Moody's downgrade, while warning trade partners they would get maximum tariffs if they did not offer deals in "good faith".

Bessent heads to a G7 meeting this week for more talks, while US Vice President JD Vance and European Commission President Ursula von der Leyen met on Sunday to discuss trade.

"It remains to be seen whether the 10 per cent reciprocal rate - excluding Canada and Mexico - will broadly remain, or will go up or down for some countries," said JPMorgan economist Michael Feroli, who estimates the current effective tariff of around 13 per cent was equivalent to a tax rise worth 1.2 per cent of GDP.

"Beyond disruptions from higher tariffs themselves, policy uncertainty should additionally weigh on growth."

The tariff war has sapped consumer sentiment and analysts will be scouring earnings from Home Depot and Target this week for an update on spending trends.

Trump said on Saturday that Walmart should "eat the tariffs" after the world's largest retailer said it would have to start raising prices due to the levies.

"If the president makes Walmart take the hit, that will impact their margins. It will impact the margins of a lot of other companies," Forvis Mazars' Lagarias said.

"If I was in the equity market, that's what I'd be looking at, not the (Moody's) downgrade."

Global shares were broadly weaker. Europe's STOXX 600 was down 0.5 per cent, while indexes in Frankfurt, Paris and London were lower between 0.1 per cent and 0.6 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.4 per cent, with Japan's Nikkei down 0.7 per cent.

Chinese blue chips eased 0.3 per cent as retail sales missed forecasts for April, while industrial output slowed but not by as much as feared.

S&P 500 futures slid 1.2 per cent and Nasdaq futures 1.4 per cent, though that followed major rallies last week in the wake of Trump's decision to lower levies on China.

Markets are still pricing in only 52 basis points of Federal Reserve rate cuts this year, compared to more than 100 basis points a month ago. Futures imply just a 40 per cent chance of a move by July, rising to over 95 per cent by September.

A host of Fed speakers are on the diary this week, including influential New York Fed President John Williams and Vice Chair Philip Jefferson on Monday. Fed Chair Jerome Powell is due to speak on Sunday.

Higher yields offered little comfort to the dollar, which fell as investors remain uneasy with the volatility of US trade policy. The euro rose 0.7 per cent to $US1.1224, while the dollar slipped 0.6 per cent to 144.85 yen.

In an interview published over the weekend, European Central Bank President Christine Lagarde said the dollar's recent decline reflected a loss of confidence in US policies.

Euro sentiment was aided by a surprise victory for the centrist candidate in Romania's presidential election over a far-right anti-EU opponent. The centre also fared relatively well in elections in Poland and Portugal.

The EU and Britain also reached a tentative agreement on defence and security, fisheries and youth mobility ahead of a summit on Monday, EU officials said.

In commodity markets, gold was on the rise again after shedding almost four per cent last week. It traded 0.9 per cent firmer at $US3,231 an ounce.

Oil prices struggled on concerns about potential increased output from OPEC and Iran.

Brent dropped 0.6 per cent to $US65.04 a barrel, while US crude eased 0.5 per cent to $US62.15 per barrel.