Today's Update 05-19-2025
Key Points and Metrics
Key Points and Metrics:
Moody's Downgrade of US Credit Rating:
Event: Moody's Ratings downgraded the US government's credit rating from AAA to AA1.
Implications: Raised concerns about the status of American assets and fiscal health.
Market Reaction:
US Bonds: Yields on 30-year Treasury bonds rose above 5%, the highest level since November 2023.
US Stocks: S&P 500 futures fell by approximately 1.3%, indicating potential declines in the stock market.
US Dollar: The dollar weakened against major currencies.
Gold: Prices rose by about 1.1%, as investors sought safe-haven assets.
Federal Reserve Remarks:
Fed's Williams:
Emphasized the need to wait and see on rate decisions due to economic uncertainty.
Noted that tariffs could potentially raise inflation and unemployment.
Fed's Jefferson:
Indicated that the downgrade would be considered in assessing jobs and inflation implications.
Highlighted the resilience of the labor market but expressed caution over policy uncertainties.
Fed's Bostic:
Suggested leaning towards one rate cut within the year.
Acknowledged that tariffs and the credit rating downgrade could impact economic outlook and demand for US debt.
US-China Trade Tensions:
China's Response to US Actions:
Criticized the US for statements on Huawei and chip export controls.
Commerce Ministry Statement: Urged the US to correct "wrongdoings" and underscored that China would take firm steps to protect its interests.
Potential Retaliation: Indicated possible countermeasures if the US continues its current approach.
Market Impact: S&P 500 futures weakened following China's statements.
Geopolitical Developments:
US-Russia Relations:
Scheduled Call: President Trump was set to speak with Russian President Putin at 10:00 AM ET.
White House Statements: Indicated that all options are on the table, including secondary sanctions, and a readout would follow the call.
Kremlin's Position: No meeting between Putin and Trump was being prepared at the moment.
Ukraine Conflict:
US Vice President Vance: Mentioned the possibility of the US reconsidering its involvement if Russia is unwilling to engage in resolving the Ukraine conflict.
Economic Indicators:
United States:
Leading Index Change MoM: Actual figure came in at -1.0% (Forecast: -0.9%, Previous: -0.8%).
Effective Federal Funds Rate: Held steady at 4.33% on May 16.
Secured Overnight Financing Rate: Slight decrease to 4.30% on May 16 from 4.31%.
Eurozone:
CPI YoY Final: Reported at 2.2% (Forecast: 2.2%, Previous: 2.2%).
Core CPI YoY Final: Stood at 2.7% (Forecast: 2.7%, Previous: 2.7%).
EU Commission Forecasts:
Economic Growth Outlook: Revised down due to weaker trade outlook and policy uncertainty.
Unemployment Rate Projections: Expected to decrease to 6.1% in 2026 from 6.4% in 2024.
Corporate Earnings Estimates:
May 20:
Home Depot (HD):
Time: 06:00 ET
Expected EPS: $3.59
Expected Revenue: $39.349 billion
May 21:
Target (TGT):
Time: 06:30 ET
Expected EPS: $1.68
Expected Revenue: $24.064 billion
Other Notable Events:
China's Economic Measures:
Plans to cut deposit interest rates by state banks.
Emphasis on enhancing technological service innovation and quality management.
Energy Sector:
Chevron (CVX): Announced the shutdown of the Leviathan Gas Platform for planned maintenance.
Russia's Energy Relations:
Gazprom working on a new gas contract with Serbia.
China proposing to increase oil imports from Russia via Kazakhstan.
Angola: Plans to increase oil exports to 1.02 million barrels per day in July.
European Union and UK Relations:
Reached an outline deal to strengthen ties, pending political approval.
Discussions on the UK's potential participation in the EU's defense fund and other cooperative efforts.
Market Movements:
Currencies:
Euro (EUR): Rose as much as 1.1% against the US dollar.
Currency Strength Chart (as of May 19):
Strongest to Weakest: JPY, EUR, CHF, NZD, GBP, AUD, USD, CAD.
Treasury Yields:
10-Year Yield: Increased by seven basis points to 4.54%.
30-Year Yield: Surpassed 5%, reflecting bond market concerns.
Trade Agreements and Tariffs:
US-Japan Trade Agreement:
Delayed due to negotiations over financial contributions to US military presence in Japan.
EU-US Tariff Assumptions:
Forecasts based on potential US tariffs of 10% on all EU goods and 25% on steel, aluminum, and cars.
Upcoming Economic Events:
Fed Speakers:
Fed's Logan, Kashkari, Bostic, Williams, and Jefferson scheduled to speak, potentially providing insights into monetary policy and economic outlook.
Economic Indicators to Watch:
PBoC Interest Rate Decisions: Upcoming announcements on 1-year and 5-year rates.
Canadian CPI Data: Expected figures for year-over-year and month-over-month inflation rates.
Upcoming Events:
10:00 AM ET: Trump-Putin phone call
11:30 AM ET: US Treasury bill auctions
13:15 PM ET: Fed's Logan speaks
13:30 PM ET: Fed's Kashkari speaks
14:45 PM ET: Fed's Bostic speaks
21:00 PM ET: PBoC Interest Rate decisions
Fed Commentary:
Fed's Williams: "The economy is likely to slow this year"; "We can take time on monetary policy decisions"
Fed's Jefferson: "Tariffs could cause one-time price level increase"; "Appropriate to wait and see on rate decisions"
Fed's Bostic: "Leaning much more into one rate cut this year"; "Moody's downgrade will cut across economics and financial markets"
Final Thoughts
Markets are reacting strongly to Moody's downgrade of US government debt, which cited a ballooning budget deficit with little sign of narrowing. This comes at a critical time as the Trump administration proposes unfunded tax cuts and implements new tariff policies. The geopolitical landscape adds complexity with scheduled Trump-Putin and Trump-Zelenskiy calls today. Fed officials are signaling caution, suggesting a "wait and see" approach on rate decisions as they assess how new trade policies might impact inflation and employment. Investors should watch Treasury auctions closely today for signs of changing demand for US debt following the downgrade.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always do your own research and consider your financial situation before making investment decisions.
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Harry