Global Markets Jittery on Trump’s Tariff Pause, Moody’s Downgrade

Global Markets Face Crosswinds as Trump’s Tariff Pause and Moody’s Downgrade Highlight Fiscal and Trade Fragility

Mounting anxiety over global fiscal health, trade dislocation, and slowing growth is intensifying as markets absorb the impact of President Donald Trump’s tariff policy pause and Moody’s downgrade of the United States’ sovereign credit rating. With economic data and policy decisions expected across key economies this week, investors are bracing for heightened volatility in financial markets, renewed demand for safe-haven assets, and increasing divergence in central bank actions.

Gold Surges as Moody’s Cuts US Credit Rating, Reigniting Demand for Havens

Gold prices rebounded sharply after Moody’s Ratings stripped the US of its last remaining Aaa credit rating, downgrading it to Aa1 amid persistent fiscal deterioration. Bullion gained as much as 1.3% in early Asian trading on Monday, rising to $3,245.67 an ounce after a dismal week that marked its steepest weekly loss in six months. The downgrade was attributed to successive US administrations’ inability to rein in budget deficits, which have ballooned under surging interest costs and rising entitlement spending.

• Moody’s said the US fiscal outlook is no longer compatible with a top-tier rating, signaling deeper investor concern over the sustainability of US debt.

• Gold’s recovery reflects renewed demand for safe-haven assets, with investors hedging against rising geopolitical risk, fiscal instability, and currency debasement fears.

• Despite last week’s retreat, gold remains over 20% higher year-to-date, driven by persistent geopolitical crises, Trump’s tariff agenda, and institutional buying through ETFs.

Vasu Menon of OCBC Bank noted that while volatility may persist in the near term, structural forces such as dollar diversification and protectionist trade policy under Trump remain long-term bullish catalysts for bullion.

Halfway Through Trump’s Tariff Pause, Data to Reveal Global Trade Fallout

This week’s economic data will offer the most comprehensive snapshot yet of the economic cost of Trump’s trade offensive, now halfway through a 90-day hiatus on reciprocal tariffs. The US administration paused new levies on April 9 following negotiations with China in Switzerland, but the underlying uncertainty has already begun reshaping trade patterns, consumption, and investment decisions across major economies.

• April and May purchasing manager indexes (PMIs) from the US, eurozone, UK, China, and Asia-Pacific economies are due this week, likely to confirm a synchronized growth slowdown.

• Chinese industrial production and retail sales figures for April are expected to show weakening factory momentum and modest consumer resilience.

• European Union exports to the US jumped nearly 60% in March, suggesting accelerated shipments ahead of potential tariff escalation.

• US April import prices reveal domestic importers are bearing the brunt of tariff costs, with price indices flat excluding tariffs.

Economists from S&P Global observed that surviving levies and looming tariff threats are “widely expected to dampen global growth and raise inflation,” highlighting a growing unease among manufacturers and global supply chain operators.

US Outlook Clouded by Sluggish Housing, Flat Industrial Activity, and Moody’s Fallout

The US economic calendar lightens this week, but the focus shifts to May flash PMIs, April housing market readings, and a series of Federal Reserve speeches as markets seek direction amid renewed fiscal concerns. Data on existing home sales and contract signings for new homes are projected to show only modest traction, reinforcing concerns about housing affordability and demand softness.

• The National Association of Realtors is expected to report weak growth in home resales, while new home contract signings may have declined.

• S&P Global’s May manufacturing and services PMIs, due Thursday, will likely reflect ongoing industrial stagnation despite some resilience in services.

• The Fed’s inflation dilemma is exacerbated by Moody’s downgrade, with Treasury Secretary Scott Bessent dismissing concerns, calling the rating cut a “lagging indicator.”

With core inflation slowing and the housing market fragile, traders are closely watching for dovish shifts among Fed policymakers such as John Williams and Philip Jefferson, who are scheduled to speak later this week.

Canada Eyes Rate Cut Amid Slower Inflation and Tariff Uncertainty

The Bank of Canada is expected to hold rates steady despite inflation dipping to 1.5% in April, below its 2% target. Policymakers remain cautious, worried that the US trade environment could reignite inflationary pressures. At the same time, April retail sales data and early consumption indicators may reveal front-loaded purchases ahead of auto tariffs and a potential pullback thereafter.

• Traders have priced in nearly 70% odds of a rate cut in June, given weak consumption and lingering trade uncertainty.

• Canada’s exposure to the US makes it acutely vulnerable to tariff whiplash, especially in autos and energy exports.

Asia’s Policy Landscape Shifts as China, Australia, and Japan Tread Cautiously

Asia enters the week with a flurry of economic indicators and monetary policy decisions. China is expected to unveil weaker industrial output, stable jobless numbers, and a slight improvement in retail sales, while also likely to cut its loan prime rates in response to sluggish property investment and falling business confidence.

• China’s property sector continues to drag as investments slump, adding pressure on policymakers to stimulate credit flow.

• The Reserve Bank of Australia is widely expected to cut its benchmark rate by 25 basis points to 3.85% amid easing inflation and global trade friction.

• Japan’s data will be in sharp focus, with key indicators such as PMIs, machine orders, CPI, and department store sales due, all of which reflect the trade war’s toll.

Other Asian nations including Malaysia, Taiwan, Thailand, and India will release trade and growth data, offering clues to the extent of economic restructuring triggered by tariff disruptions.

Europe Braces for Sticky Inflation and Cautious ECB Messaging

The UK will release inflation data for April, expected to show a surge to 3.3% on higher energy costs, with services inflation hovering around 5%, complicating the Bank of England’s path toward easing. The eurozone’s economic calendar is heavy, with EU forecasts, consumer confidence, PMIs, and wage indicators expected to paint a mixed picture of fragile growth and persistent price pressures.

• ECB’s financial stability report and April meeting minutes will be closely watched for hints on balance sheet strategy and rate guidance.

• ECB President Christine Lagarde expressed cautious optimism, highlighting improving purchasing power and moderating inflation but acknowledged US policy risks weigh on European confidence.

• Italy’s sovereign credit outlook may improve, with updates from both Moody’s and Scope Ratings due at the end of the week.

Central Banks Across EMEA and Latin America Cautiously Adjust Monetary Levers

Central banks across emerging markets are delicately balancing inflation and growth. Nigeria and Angola are expected to hold rates steady amid uncertain price dynamics. Iceland may cut rates slightly, while Egypt is poised to trim borrowing costs further, continuing a post-pandemic easing cycle.

• Zambia likely to keep its rate unchanged at 14.5%, with inflation projections under scrutiny.

• In Latin America, Chile’s Q1 GDP, Brazil’s activity data, and Argentina’s GDP-proxy report will offer insights into whether tight policy is constraining momentum.

• Mexico’s final GDP reading, mid-month CPI, and retail sales data will add depth to recession risk forecasts, which now stand at the highest levels since 2020.

Highlights

• Gold surged 1.3% after Moody’s downgraded the US credit rating to Aa1, reigniting safe-haven flows.

• PMI and macroeconomic data across China, the eurozone, and the US will gauge the real-time impact of Trump’s paused tariffs.

• The Federal Reserve, Bank of Canada, and Reserve Bank of Australia face diverging paths on interest rates, reflecting local inflation dynamics and global trade uncertainty.

• UK inflation is forecast to accelerate, complicating BoE rate plans, while ECB’s financial review and eurozone wage data may offer new inflation insights.

• Emerging market central banks in Egypt, Iceland, Nigeria, and Latin America adjust policies cautiously, balancing inflation and growth risks amid volatile global backdrops.