• Asian stock markets fell following Moody's downgrade of the US credit rating from Aaa to Aa1.
• The downgrade was attributed to increasing government debt and expected deficits growth.
• Investors reacted negatively after a brief recovery due to US-China tariff agreements.
• The dollar weakened and treasury yields are expected to rise.
• Gold prices rose, benefiting from its safe-haven appeal amid economic uncertainty.

Asian stock markets experienced a decline on Monday as investors reacted to Moody's recent decision to downgrade the United States' last remaining triple-A sovereign credit rating from Aaa to Aa1. Analysts noted that the rating was cut due to a significant increase in government debt and projected deficits, which are expected to reach nearly 9% of GDP by 2035 compared to 6.4% last year. This downgrade has rekindled worries about Washington's rising debt burden, particularly following a temporary agreement between the US and China to reduce trade tariffs, which had previously boosted market optimism. Overall, markets in Tokyo, Hong Kong, and Shanghai all reported losses, with the Hang Seng Index down 0.6% and the Nikkei 225 declining by 0.4% according to India Times, The Jakarta Post, and Channel News Asia.

The downgrade reflects a long-term economic concern, as Moody's cited an "increased government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns." This situation is expected to push Treasury yields higher, raising borrowing costs for the federal government. Treasury Secretary Scott Bessent referred to Moody's action as "a lagging indicator" and blamed the current financial situation on previous administrations, emphasizing that the deficit-to-GDP ratio inherited from past policies was the highest outside of recessionary periods. These sentiments were echoed by White House communications director Steven Cheung, who criticized the credibility of Moody's chief economist, implying a disconnect with market sentiment, as reported by The Jakarta Post and Channel News Asia.

The market's downward pressure was compounded by disappointing retail sales data from China, reinforcing concerns about domestic demand in the world's second-largest economy despite recent stimulus efforts. Several analysts believe that while the downgrade poses psychological barriers for investor confidence, its overall impact on Treasury yields and bond market behavior will be limited unless further downgrades occur. Ray Attrill from the National Australia Bank stated, "Moody's actions will have zero impact on any investor's ability or willingness to continue holding US Treasuries," noting that significant changes would likely require multiple ratings downgrades, according to India Times, The Jakarta Post, and Channel News Asia.

Gold prices increased on the day as investors sought safe-haven assets amid the uncertainty surrounding the markets. Following the downgrade, gold rose to $3,225 per ounce, highlighting its appeal in turbulent economic times. Meanwhile, the US dollar depreciated against other major currencies amidst the market decline, suggesting a collective shift in investor sentiment influenced by the downgrade and broader economic concerns. Financial analysts are closely watching retail earnings reports from major companies like Target, Home Depot, and Lowe's in the coming days, as they will provide critical insights into consumer spending trends amidst the prevailing economic challenges, as highlighted by India Times, The Jakarta Post, and Channel News Asia.