Inventory markets drop after US credit standing downgraded by Moody’s – enterprise stay | Enterprise
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Introduction: US digests Moody’s credit standing downgrade
Good morning, and welcome to our rolling protection of enterprise, the monetary markets and the world economic system.
How did the US lose its triple-A credit standing? Step by step, then immediately.
Moody’s dealt the dying blow on Friday afternoon, asserting it was chopping its ranking on US authorities debt to Aa1, one notch down from the gold-standard Aaa.
That is 14 years after S&P grew to become the primary main company to downgrade the US, with Fitch following go well with in 2023.
Moody’s cited the swelling US nationwide debt – now $36trn – and rising curiosity prices, saying:
Over greater than a decade, US federal debt has risen sharply attributable to steady fiscal deficits. Throughout that point, federal spending has elevated whereas tax cuts have lowered authorities revenues. As deficits and debt have grown, and rates of interest have risen, curiosity funds on authorities debt have elevated markedly.
Treasury secretary Scott Bessent tried to brush apart the difficulty, telling CNN that he “doesn’t put a lot credence within the Moody’s” downgrade.
We have inherited a 6.7% deficit-to-GDP, the very best exterior conflict or recession.
Our focus is to develop the economic system sooner than the debt, that’s how we are going to stabilize debt-to-GDP. pic.twitter.com/yblwrunO9t
— Treasury Secretary Scott Bessent (@SecScottBessent) Might 18, 2025
Bessent took an 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 all the pieces, however he mentioned that’s once they downgraded the U.S. in 2011. So it’s a lagging indicator.
Traders could take the identical view. In spite of everything, Moody’s is barely reacting to data already accessible to the market.
However…. US borrowing prices have been rising lately, including to fiscal pressures. Moody’s downgrade could possibly 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 prompted some eyebrow-raising, at a time when some Republican rebels in Congress had been opposing Donald Trump’s ‘massive, lovely invoice’, fearing tax cuts will make the fiscal place even worse.
The agenda
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9.30am BST: S&P International UK Shopper Sentiment Index
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10am BST: Eurozone inflation report for April (remaining studying)
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3pm BST: Convention Board Main Financial Index of the US economic system
Key occasions
UBS are hopeful that Moody’s US credit standing downgrade is not going to have a serious imapct on the markets.
They informed purchasers this morning:
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The transfer shouldn’t come as a shock.
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Important promoting of US Treasuries is unlikely, in our view.
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Credit score downgrades are much less politically expensive within the US than you may suppose.
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Fairness buyers are targeted elsewhere.
Mark Haefele, chief funding officer at UBS International Wealth Administration, says:
“General, we view this newest credit score motion as a headline danger relatively than a basic shift for markets. We’d additionally count on the Federal Reserve to step in if there have been a disorderly or unsustainable enhance in bond yields.
So whereas the downgrade could lean in opposition to a few of the current ‘excellent news’ momentum, we don’t count on it to have a serious direct impression on monetary markets.”
European inventory markets have opened slightly decrease, regardless of experiences of a last-minute breakthrough in talks between the UK and EU over a major reset to post-Brexit relations.
In London, the FTSE 100 share index has dropped by 38 factors, or 0.45%, at 8646 factors.
The pan-European Stoxx 600 has additionally dropped by 0.3%, whereas Germany’s DAX has slipped by 0.1%.
You’ll be able to observe right this moment’s UK-EU summit right here:
US 30-year Treasury yield hits 5%
US authorities bonds are weakening this morning, pushing the yield – or rate of interest – on Treasury payments larger.
The US 30-year Treasury yield has risen to five% this morning, up from 4.89% on Friday night time simply earlier than Moody’s downgraded the US.
The US 30-year Treasury #yield is again at 5%!
Japan’s 30-year authorities bond yield is at 3%, the very best stage in many years.
An rising variety of economists and market pundits imagine rates of interest will go a lot larger and can turn into structurally excessive (they don’t seem to be excessive at… pic.twitter.com/eqodFHKZ9L— jeroen blokland (@jsblokland) Might 19, 2025
Kathleen Brooks, analysis director at XTB, says the markets are reacting to the information that the US now not has the coveted triple A credit standing:
Treasury yields are larger throughout the board, and the 30-year yield breached the important thing 5% stage on Monday morning. Whereas we don’t suppose that there can be a mass exodus from US belongings this week, it might result in extra mutterings about diversification away from US belongings.
The impression on danger sentiment has been broad-based, and there have been additionally declines for shares in Asia and European futures are additionally decrease. If we see a transfer out of Treasuries, and beneficial properties for bonds elsewhere, then we might see world shares ex the US make a restoration.
Diageo: Tariffs to value $150m per 12 months
Drinks big Diageo has predicted it faces a $150m per 12 months hit from Donald Trump’s tariffs, at their present stage.
In an announcement to the Metropolis, Diageo – whose manufacturers embrace Smirnoff vodka, Johnnie Walker whiskey and Astral Tequila, says:
Assuming the present 10% tariff stays on each UK and European imports into the US, that Mexican and Canadian spirits imports into the US stay exempt below USMCA, and that there are not any different adjustments to tariffs, the unmitigated impression of those tariffs is estimated to be c.$150m on an annualised foundation.
Tariffs between the US and China don’t have a cloth impression on our enterprise. We count on that given the actions that we’ve in place already, earlier than any pricing, we will mitigate round half of this impression on working revenue on an ongoing foundation.
Diageo additionally revealed it’s embarking on a $500m value financial savings programme over the following three years.
Mohit Kumar of funding financial institution Jefferies predicts Moody’s downgrade will solely have a “restricted close to time period impression” on the markets, explaining:
For one, Moody’s was already above its friends from S&P and Fitch and the ranking downgrade brings it consistent with the opposite ranking businesses.
Second, the transfer was not completely surprising. We have now been within the camp that we have to value in a better danger premium for the US lengthy finish [ie longer-dated bonds].
Lastly, if historical past is any information, ranking motion impression has usually 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 couple of third of a cent to $1.331.
Asia-Pacific markets drop after US downtrade
The instant market response to Moody’s downgrade of the US credit standing is damaging.
Asia-Pacific markets are decrease right this moment, whereas the futures market suggests Wall Road might drop by round 1% when buying and selling begins.
In Toyko, Japan’s Nikkei share index is down 0.7% at 37,485 factors in late buying and selling. South Korea’s KOSPI has misplaced 1.2%, and Australia’s S&P/ASX is down 0.7%.
Gold, a traditional safe-haven asset, is up 0.75% at $3,225 per ounce.
Kyle Rodda, senior monetary market analyst at capital.com, says:
Asian markets opened the week on a combined footing, with consideration turning to the fallout from Moody’s downgrade of the US sovereign credit score outlook. Whereas the transfer is essentially symbolic, it could put slight upward strain on Treasury yields, which might tighten monetary circumstances globally—particularly in additional rate-sensitive components of Asia.
The US Greenback can be a bit decrease this morning and gold has gapped larger.
Introduction: US digests Moody’s credit standing downgrade
Good morning, and welcome to our rolling protection of enterprise, the monetary markets and the world economic system.
How did the US lose its triple-A credit standing? Step by step, then immediately.
Moody’s dealt the dying blow on Friday afternoon, asserting it was chopping its ranking on US authorities debt to Aa1, one notch down from the gold-standard Aaa.
That is 14 years after S&P grew to become the primary main company to downgrade the US, with Fitch following go well with in 2023.
Moody’s cited the swelling US nationwide debt – now $36trn – and rising curiosity prices, saying:
Over greater than a decade, US federal debt has risen sharply attributable to steady fiscal deficits. Throughout that point, federal spending has elevated whereas tax cuts have lowered authorities revenues. As deficits and debt have grown, and rates of interest have risen, curiosity funds on authorities debt have elevated markedly.
Treasury secretary Scott Bessent tried to brush apart the difficulty, telling CNN that he “doesn’t put a lot credence within the Moody’s” downgrade.
We have inherited a 6.7% deficit-to-GDP, the very best exterior conflict or recession.
Our focus is to develop the economic system sooner than the debt, that’s how we are going to stabilize debt-to-GDP. pic.twitter.com/yblwrunO9t
— Treasury Secretary Scott Bessent (@SecScottBessent) Might 18, 2025
Bessent took an 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 all the pieces, however he mentioned that’s once they downgraded the U.S. in 2011. So it’s a lagging indicator.
Traders could take the identical view. In spite of everything, Moody’s is barely reacting to data already accessible to the market.
However…. US borrowing prices have been rising lately, including to fiscal pressures. Moody’s downgrade could possibly 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 prompted some eyebrow-raising, at a time when some Republican rebels in Congress had been opposing Donald Trump’s ‘massive, lovely invoice’, fearing tax cuts will make the fiscal place even worse.
The agenda
-
9.30am BST: S&P International UK Shopper Sentiment Index
-
10am BST: Eurozone inflation report for April (remaining studying)
-
3pm BST: Convention Board Main Financial Index of the US economic system
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