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Introduction: US digests Moody’s credit standing downgrade
Good morning, and welcome to our rolling protection of industrial, the monetary markets and the arena economic system.
How did the USA lose its triple-A credit standing? Gradually, then unexpectedly.
Moody’s dealt the dying blow on Friday afternoon, saying it used to be slicing its ranking on US executive debt to Aa1, one notch down from the gold-standard Aaa.
This is 14 years after S&P become the primary primary company to downgrade the USA, with Fitch following swimsuit in 2023.
Moody’s cited the swelling US nationwide debt – now $36trn – and rising hobby prices, pronouncing:
Over greater than a decade, US federal debt has risen sharply because of steady fiscal deficits. During that point, federal spending has larger whilst tax cuts have decreased executive revenues. As deficits and debt have grown, and rates of interest have risen, hobby bills on executive debt have larger markedly.
Treasury secretary Scott Bessent attempted to comb apart the problem, telling CNN that he “does not put much credence in the Moody’s” downgrade.
We’ve inherited a 6.7% deficit-to-GDP, the perfect outdoor battle or recession.
Our center of attention is to develop the economic system quicker than the debt, that’s how we can stabilize debt-to-GDP. pic.twitter.com/yblwrunO9t
— Treasury Secretary Scott Bessent (@SecScottBessent) May 18, 2025
Bessent took a identical line to NBC, telling their Meet the Press program:
I believe that Moody’s is a lagging indicator. I believe that’s what everybody thinks of credit score businesses. Larry Summers and I don’t agree on the whole thing, however he mentioned that’s after they downgraded the U.S. in 2011. So it’s a lagging indicator.
Investors would possibly take the similar view. After all, Moody’s is handiest reacting to knowledge already to be had to the marketplace.
On the opposite hand…. US borrowing prices had been emerging in recent times, including to fiscal pressures. Moody’s downgrade might be an excuse for some bond-holders to promote, pushing down costs and elevating yields (the rate of interest on Treasury bonds).
The timing of Moody’s transfer has induced some eyebrow-raising, at a time when some Republican rebels in Congress are opposing Donald Trump’s ‘big, beautiful bill’, fearing tax cuts will make the fiscal place even worse.
The schedule
-
9.30am BST: S&P Global UK Consumer Sentiment Index
-
10am BST: Eurozone inflation record for April (ultimate studying)
-
3pm BST: Conference Board Leading Economic Index of the USA economic system
Key occasions
US 30-year Treasury yield hits 5%
US executive bonds are weakening this morning, pushing the yield – or rate of interest – on Treasury expenses upper.
The US 30-year Treasury yield has risen to 5% this morning, up from 4.89% on Friday night time simply ahead of Moody’s downgraded the USA.
The US 30-year Treasury #yield is again at 5%!
Japan’s 30-year executive bond yield is at 3%, the perfect stage in a long time.
An expanding collection of economists and marketplace pundits imagine rates of interest will cross a lot upper and can turn into structurally top (they aren’t top at… pic.twitter.com/eqodFHKZ9L— jeroen blokland (@jsblokland) May 19, 2025
Kathleen Brooks, analysis director at XTB, says the markets are reacting to the inside track that the USA now not has the coveted triple A credit standing:
Treasury yields are upper around the board, and the 30-year yield breached the important thing 5% stage on Monday morning. While we don’t suppose that there will probably be a mass exodus from US belongings this week, it would result in extra mutterings about diversification clear of US belongings.
The affect on possibility sentiment has been broad-based, and there have been additionally declines for shares in Asia and European futures also are decrease. If we see a transfer out of Treasuries, and positive factors for bonds in other places, then lets see international shares ex the USA make a restoration.
Diageo: Tariffs to price $150m according to yr
Drinks large Diageo has predicted it faces a $150m according to yr hit from Donald Trump’s price lists, at their present stage.
In a commentary to the City, Diageo – whose manufacturers come with Smirnoff vodka, Johnnie Walker whiskey and Astral Tequila, says:
Assuming the present 10% tariff stays on each UK and European imports into the USA, that Mexican and Canadian spirits imports into the USA stay exempt underneath USMCA, and that there are not any different adjustments to price lists, the unmitigated affect of those price lists is estimated to be c.$150m on an annualised foundation.
Tariffs between the USA and China would not have a subject matter affect on our industry. We be expecting that given the movements that we have got in position already, ahead of any pricing, we can mitigate round part of this affect on running benefit on an ongoing foundation.
Diageo additionally printed it’s embarking on a $500m price financial savings programme over the following 3 years.
Mohit Kumar of funding financial institution Jefferies predicts Moody’s downgrade will handiest have a “limited near term impact” at the markets, explaining:
For one, Moody’s used to be already above its friends from S&P and Fitch and the ranking downgrade brings it in keeping with the opposite ranking businesses.
Second, the transfer used to be no longer completely sudden. We had been within the camp that we wish to value in a better possibility top rate for the USA lengthy finish [ie longer-dated bonds].
Lastly, if historical past is any information, ranking motion affect has most often been short-lived and the markets shrugging off the view within the medium time period.
The greenback has dropped round 0.33% in opposition to a basket of different currencies this morning.
The pound is up a few 3rd of a cent to $1.331.
Asia-Pacific markets drop after US downtrade
The instant marketplace response to Moody’s downgrade of the USA credit standing is unfavourable.
Asia-Pacific markets are decrease as of late, whilst the futures marketplace suggests Wall Street may just drop through round 1% when buying and selling starts.
In Toyko, Japan’s Nikkei proportion index is down 0.7% at 37,485 issues in past due buying and selling. South Korea’s KOSPI has misplaced 1.2%, and Australia’s S&P/ASX is down 0.7%.
Gold, a vintage safe-haven asset, is up 0.75% at $3,225 according to ounce.
Kyle Rodda, senior monetary marketplace analyst at capital.com, says:
Asian markets opened the week on a blended footing, with consideration turning to the fallout from Moody’s downgrade of the USA sovereign credit score outlook. While the transfer is in large part symbolic, it’s going to put slight upward drive on Treasury yields, which might tighten monetary stipulations globally—particularly in additional rate-sensitive portions of Asia.
The US Dollar could also be a little bit decrease this morning and gold has gapped upper.
Introduction: US digests Moody’s credit standing downgrade
Good morning, and welcome to our rolling protection of industrial, the monetary markets and the arena economic system.
How did the USA lose its triple-A credit standing? Gradually, then unexpectedly.
Moody’s dealt the dying blow on Friday afternoon, saying it used to be slicing its ranking on US executive debt to Aa1, one notch down from the gold-standard Aaa.
This is 14 years after S&P become the primary primary company to downgrade the USA, with Fitch following swimsuit in 2023.
Moody’s cited the swelling US nationwide debt – now $36trn – and rising hobby prices, pronouncing:
Over greater than a decade, US federal debt has risen sharply because of steady fiscal deficits. During that point, federal spending has larger whilst tax cuts have decreased executive revenues. As deficits and debt have grown, and rates of interest have risen, hobby bills on executive debt have larger markedly.
Treasury secretary Scott Bessent attempted to comb apart the problem, telling CNN that he “does not put much credence in the Moody’s” downgrade.
We’ve inherited a 6.7% deficit-to-GDP, the perfect outdoor battle or recession.
Our center of attention is to develop the economic system quicker than the debt, that’s how we can stabilize debt-to-GDP. pic.twitter.com/yblwrunO9t
— Treasury Secretary Scott Bessent (@SecScottBessent) May 18, 2025
Bessent took a identical line to NBC, telling their Meet the Press program:
I believe that Moody’s is a lagging indicator. I believe that’s what everybody thinks of credit score businesses. Larry Summers and I don’t agree on the whole thing, however he mentioned that’s after they downgraded the U.S. in 2011. So it’s a lagging indicator.
Investors would possibly take the similar view. After all, Moody’s is handiest reacting to knowledge already to be had to the marketplace.
On the opposite hand…. US borrowing prices had been emerging in recent times, including to fiscal pressures. Moody’s downgrade might be an excuse for some bond-holders to promote, pushing down costs and elevating yields (the rate of interest on Treasury bonds).
The timing of Moody’s transfer has induced some eyebrow-raising, at a time when some Republican rebels in Congress are opposing Donald Trump’s ‘big, beautiful bill’, fearing tax cuts will make the fiscal place even worse.
The schedule
-
9.30am BST: S&P Global UK Consumer Sentiment Index
-
10am BST: Eurozone inflation record for April (ultimate studying)
-
3pm BST: Conference Board Leading Economic Index of the USA economic system
