Global equity markets fell heavily on Monday after the S&P announced on Friday after markets closed it downgraded the longstanding AAA credit rating of the United States to AA+, which sent a huge wave of pessimism across global markets, where investors shunned risky assets and headed to safety investments.
Although the downgrade was somewhat expected in markets, yet traders are still not sure what the aftermath of this downgrade will be on economic growth, especially since recent signs suggested economic growth is losing momentum, which raises more questions over the outlook of global growth.
The S&P also announced on Monday it downgraded the senior debt rating for Fannie Mae, Freddie Mac, and Federal Home Loans Bank from AAA to AA+, which increased fear in markets and widened losses in stock markets.
Moreover, the European debt crisis continued to dominate investors as well, despite the ECB decision to expand its bond purchase program to include Italian and Spanish debt, while the G7 signaled it will cooperate to support confidence in markets amid the confidence crisis that has been prevailing over the past period and pushed global equity markets sharply lower.
Stocks in the United States fell sharply by opening on Monday, where the Dow Jones Industrial Average was down by nearly 3.10% to trade around 11,090, while the S&P 500 index was down by nearly 3.70% to trade around 1155. European stock indexes were also lower before closing on Monday, where FTSE 100 was down by nearly 2.15% to trade at 5133 and the DAX was down by nearly 3.45% to trade around 6020.
The U.S. dollar rose sharply against a basket of major currencies on Monday, where the U.S. dollar index was trading at 74.80, compared with the opening level at 74.39. The Euro fell heavily against the Dollar, where the EUR/USD pair traded at $1.4146, compared with the opening level at $1.4308, and the British Pound also fell heavily against the Dollar, where the GBP/USD pair traded around $1.6313, compared with the opening level at $1.6422.
Gold prices rose on Monday to a new record high above $1715 an ounce, while gold was last trading around $1702 an ounce, and crude oil prices extended losses to trade around $83 a barrel.