Ratings agency Standard & Poor´s downgraded the long term US credit outlook to negative. S&P cited a risk that policy makers may not reach agreement on a plan to reduce the US federal budget deficit. White House spokesman Jay Carney said that a failure by Congress to lift the US debt ceiling would immediately arrest the US economic recovery.

The US NAHB housing market index eased modestly from 17 to 16 in April. The index has now remained below the key 50 level for a full five years.

European shares fell to a three-week low on Monday. Insurers exposed to US equities were amongst the biggest fallers after S&P cut its US credit outlook. The STOXX Europe 600 Insurance Index fell 3.4pct. Euro zone debt troubles continued to worry investors with the European banking index losing 2.2pct. The FTSEurofirst index fell by 1.7pct. The German Dax and UK FTSE both lost 2.1pct.

US sharemarkets fell on Monday as sovereign debt fears dominated sentiment. The CBOE volatility index rose 10.7pct. Citigroup was unchanged after reporting a first-quarter profit that was slightly higher expected. Energy stocks were weaker following the slide in the oil price. The Dow Jones index fell by 140pts or 1.1pct with the S&P 500 lower by 1.1pct and the Nasdaq weaker by 29pts or 1.1pct.

US treasuries rose on Monday (yields lower) with investors resisting the temptation to drop bonds in the face of the S&P ratings downgrade, rather losses in equity markets took over as the main driver for price action. US 2yr yields fell by 3pts to 0.665pct and US 10yr yields fell by 3pts to 3.380pct.

  • The Euro fell sharply against the US dollar as euro zone debt concerns outweighed the US economic outlook. The Euro eased from highs near US$1.4385 to US$1.4170, ending US trade near US$1.4235. The Aussie dollar fell from highs near US105.60c to US$104.60c before ending US trade near US105.10c. And the Japanese yen rose from 82.95 yen per US dollar to near JPY82.25, before closing US trade at JPY82.65.

US crude oil prices fell on Monday after OPEC ministers said that high crude prices could place a major strain on the larger consumer based economies. The IEA executive director Nubuo Tanaka noted that the IEA was already ´´seeing some indication of the slowdown in demand, and it was alarming´´. The Nymex crude oil contract lost US$2.54 or 2.3pct to US$107.12 a barrel. The London Brent crude fell by US$1.84 to US$121.61 a barrel.

Base metal prices fell on the London Metal Exchange as investors shed riskier assets on concerns about the US economic outlook. Gold rose to fresh record highs on safe-haven buying. The Comex gold futures price rose by US$6.90 an ounce to US$1,492.90.

Ahead: In Australia, RBA board minutes are released. In the US, housing starts and building permits are released.

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