Stock markets drop after US credit rating downgraded by Moody’s – business live

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European stock markets have opened a little lower, despite reports of a last-minute breakthrough in talks between the UK and EU over a significant reset to post-Brexit relations.

In London, the FTSE 100 share index has dropped by 38 points, or 0.45%, at 8646 points.

The pan-European Stoxx 600 has also dropped by 0.3%, while Germany’s DAX has slipped by 0.1%.

You can track today’s UK-EU summit here:

US 30-year Treasury yield hits 5%

US government bonds are weakening this morning, pushing the yield – or interest rate – on Treasury bills higher.

The US 30-year Treasury yield has risen to 5% this morning, up from 4.89% on Friday night just before Moody’s downgraded the US.

Kathleen Brooks, research director at XTB, says the markets are reacting to the news that the US no longer has the coveted triple A credit rating:

Treasury yields are higher across the board, and the 30-year yield breached the key 5% level on Monday morning. While we do not think that there will be a mass exodus from US assets this week, it could lead to more mutterings about diversification away from US assets.

The impact on risk sentiment has been broad-based, and there were also declines for stocks in Asia and European futures are also lower. If we see a move out of Treasuries, and gains for bonds elsewhere, then we could see global stocks ex the US make a recovery.

Diageo: Tariffs to cost $150m per year

Drinks giant Diageo has predicted it faces a $150m per year hit from Donald Trump’s tariffs, at their current level.

In a statement to the City, Diageo – whose brands include Smirnoff vodka, Johnnie Walker whiskey and Astral Tequila, says:

Assuming the current 10% tariff remains on both UK and European imports into the US, that Mexican and Canadian spirits imports into the US remain exempt under USMCA, and that there are no other changes to tariffs, the unmitigated impact of these tariffs is estimated to be c.$150m on an annualised basis.

Tariffs between the US and China do not have a material impact on our business. We expect that given the actions that we have in place already, before any pricing, we will be able to mitigate around half of this impact on operating profit on an ongoing basis.

Diageo also revealed it is embarking on a $500m cost savings programme over the next three years.

Mohit Kumar of investment bank Jefferies predicts Moody’s downgrade will only have a “limited near term impact” on the markets, explaining:

For one, Moody’s was already above its peers from S&P and Fitch and the rating downgrade brings it in line with the other rating agencies.

Second, the move was not totally unexpected. We have been in the camp that we need to price in a higher risk premium for the US long end [ie longer-dated bonds].

Lastly, if history is any guide, rating action impact has typically been short-lived and the markets shrugging off the view in the medium term.

The dollar has dropped around 0.33% against a basket of other currencies this morning.

The pound is up about a third of a cent to $1.331.

Asia-Pacific markets drop after US downtrade

The immediate market reaction to Moody’s downgrade of the US credit rating is negative.

Asia-Pacific markets are lower today, while the futures market suggests Wall Street could drop by around 1% when trading begins.

In Toyko, Japan’s Nikkei share index is down 0.7% at 37,485 points in late trading. South Korea’s KOSPI has lost 1.2%, and Australia’s S&P/ASX is down 0.7%.

Gold, a classic safe-haven asset, is up 0.75% at $3,225 per ounce.

Kyle Rodda, senior financial market analyst at capital.com, says:

Asian markets opened the week on a mixed footing, with attention turning to the fallout from Moody’s downgrade of the US sovereign credit outlook. While the move is largely symbolic, it may put slight upward pressure on Treasury yields, which could tighten financial conditions globally—especially in more rate-sensitive parts of Asia.

The US Dollar is also a bit lower this morning and gold has gapped higher.

Introduction: US digests Moody's credit rating downgrade

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

How did the US lose its triple-A credit rating? Gradually, then suddenly.

Moody’s dealt the death blow on Friday afternoon, announcing it was cutting its rating on US government debt to Aa1, one notch down from the gold-standard Aaa.

This is 14 years after S&P became the first major agency to downgrade the US, with Fitch following suit in 2023.

Moody’s cited the swelling US national debt – now $36trn – and growing interest costs, saying:

Over more than a decade, US federal debt has risen sharply due to continuous fiscal deficits. During that time, federal spending has increased while tax cuts have reduced government revenues. As deficits and debt have grown, and interest rates have risen, interest payments on government debt have increased markedly.

Treasury secretary Scott Bessent tried to brush aside the issue, telling CNN that he “does not put much credence in the Moody’s” downgrade.

Bessent took a similar line to NBC, telling their Meet the Press program:

I think that Moody’s is a lagging indicator. I think that’s what everyone thinks of credit agencies. Larry Summers and I don’t agree on everything, but he said that’s when they downgraded the U.S. in 2011. So it’s a lagging indicator.

Investors may take the same view. After all, Moody’s is only reacting to information already available to the market.

On the other hand…. US borrowing costs have been rising in recent years, adding to fiscal pressures. Moody’s downgrade could be an excuse for some bond-holders to sell, pushing down prices and raising yields (the interest rate on Treasury bonds).

The timing of Moody’s move has prompted some eyebrow-raising, at a time when some Republican rebels in Congress are opposing Donald Trump’s ‘big, beautiful bill’, fearing tax cuts will make the fiscal position even worse.

The agenda

• 9.30am BST: S&P Global UK Consumer Sentiment Index

• 10am BST: Eurozone inflation report for April (final reading)

• 3pm BST: Conference Board Leading Economic Index of the US economy