Global stock prices fell last week as investors were alarmed by the downgrade of the US credit rating, and new threats from Washington regarding increased tariffs on imports from the European Union negatively impacted the markets.
On Wall Street, the Dow Jones dropped 2.5% to 41,603 points, while the S&P 500 fell 2.6% to 5,802 points, and the Nasdaq index decreased by 2.5% to 18,737 points.
From the very beginning of the week, the indices were in the red as Moody’s downgraded the US credit rating from Aaa to Aa1 due to a large federal budget deficit, high financing costs, and planned tax cuts.
The US public debt stands at around $36.2 trillion and could increase by another $3.8 trillion over the next ten years as President Donald Trump intends to reduce taxes.
As a result, yields on government bonds have significantly increased, meaning that the government must borrow at a higher cost.
Tax cuts would likely stimulate consumption and support economic growth, but on the other hand, public debt would rise if government spending is not reduced.
However, reducing federal spending, which is one of Trump’s priorities, is not going as smoothly as the president announced. Moreover, it seems that this project is not well-prepared enough.
Nevertheless, by the end of the week, bond yields somewhat stabilized after the House of Representatives narrowly supported Trump’s tax cut proposal, with only Senate support pending.
However, on Friday, Trump once again rattled the markets by threatening the European Union with tariffs of 50% starting June 1, as he is dissatisfied with the progress of trade negotiations between the US and the EU.
Additionally, stock prices fell on most European exchanges last week. Although the London FTSE index strengthened by 0.4% to 8,717 points, the Frankfurt DAX dropped by 0.6% to 23,629 points, and the Paris CAC fell by 1.9% to 7,734 points.
