The Magpies do have other targets identified but there's no sugarcoating the fact that missing out on Munoz is a huge blow and one club officials weren't anticipating.
Newcastle always knew there was fierce competition for Munoz and Liverpool's interest was no secret.
But there was real confidence among club officials that Munoz would be unveiled as a Newcastle player after a £33.5m deal was struck with Osasuna and personal terms had been agreed with the winger.
So advanced were discussions, it's understood agent fees had also been agreed and Munoz had told Newcastle he wanted the move.
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The Magpies were in the process of finalising a medical in the US - where Munoz is currently situated with the Spain squad for the World Cup. The medical was due to take place this week and Newcastle officials felt they were on the verge of securing their second summer signing after last week's arrival of French goalkeeper Ewen Jaouen.
But there was then a hold-up, said to have been initiated by the player's representatives, which clearly gave Liverpool the opportunity to strike and very quickly make progress.
Liverpool triggered Munoz's £34.6m release clause, which will be paid in two instalments, and Munoz completed his medical with the club in the US on Wednesday. He has agreed a six-year deal with the signing set to be confirmed in the next 24 hours.
Andoni Iraola is said to have been the driving force behind the deal and pushed for the signing of the winger. Liverpool's new head coach believes Munoz can help bring the best out of former Newcastle striker Alexander Isak.
But Munoz is believed to have indicated to Newcastle that he'd wanted to move to St James' Park, so United officials are now trying to piece together what happened and how they missed out on a leading target.
After last summer's nightmare blow, it's a huge setback the Magpies could have really done without and will only serve to heighten frustrations among supporters and put further pressure on Ross Wilson and the club's recruitment team. After missing out on several targets last summer, and with Newcastle confident that the Munoz deal would be done, it raises more uncomfortable questions for club officials.
Newcastle need to make a positive start to the 2026/27 season after last summer's desperately disappointing domestic campaign, and this was always going to be a summer of change, with several areas of Eddie Howe's squad in need of work.
Newcastle had already missed out on Zadok Yohanna, who joined Brighton, but that never moved beyond exploratory talks, and while the Magpies were clearly interested in the 18-year-old, Munoz was identified as the leading target.
The forward was one of the stand-out attacking stars in La Liga last season after swapping Real Madrid for Osasuna and possesses the qualities that Newcastle felt would make him the ideal replacement for Anthony Gordon after his move to Barcelona.
Munoz is comfortable playing across the attack but had been lined up as the direct Gordon replacement on the left side of Newcastle's frontline.
But the Magpies have now had to swiftly readdress their plans and turn their attention to other targets.
It's been an uncertain and unsettling start to the summer on Tyneside.
The Munoz blow follows fresh speculation surrounding the future of Sandro Tonali, with Tottenham having emerged as surprise contenders to try and sign the Italian midfielder earlier this week.
Roberto De Zerbi is said to be pushing the pursuit of Tonali as he seeks a statement signing in his first summer in charge.
But Newcastle value the 26-year-old at £100m and the wage package would also be hugely significant. Spurs would be unable to offer Tonali European football of any sort next season.
Tonali, however, is of interest to a number of clubs, and while Manchester United are not expected to make a formal move this summer, Manchester City are said to be considering signing the former AC Milan man, even if they're successful in their pursuit of ex-Newcastle midfielder Elliot Anderson.
Lewis Hall is another player of interest to clubs elsewhere, with Manchester United admirers of the 21-year-old and Chelsea strongly linked, though Newcastle have no interest in losing the defender this summer and dismissed in the strongest terms claims last week that there'd been a falling out between the left-back and head coach Howe.