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Markets under pressure on US debt downgrade

Stock futures fell on Monday following a downgrade of the US credit rating by rating agency Moody’s, highlighting concerns over deficit risks. US equity markets nevertheless ended last week on a high note, buoyed by a temporary tariff reduction deal with China, but Asian markets were trading lower on Monday as the downgrade reverberated across the globe. This week, central bank decisions and key inflation data will be closely watched by investors. 

  • Date
  • Auteur Shane Strowmatt, LGT
  • Temps de lecture 5 minutes

Falling market
© Shutterstock

Stock futures fell on Monday following Moody’s downgrade of the US credit rating from Aaa to Aa1. The downgrade, attributed to the federal government's growing budget deficit and high borrowing costs, may pressure bond prices and increase yields, with the yield on benchmark 10-year US debt trading above 4.5%. Gold was trading firmer to start the week, around USD 3230, while bitcoin temporarily spiked to around USD 107,000, only to fall back to near USD 102,000 later Monday morning.

US stocks rise to end strong week

While US equity futures were in the red to start the new week following the downgrade by Moody’s, US stock markets closed higher on Friday, with the Dow Jones Industrial Average up 0.8% at 42,654.74 points. The S&P 500 increased by 0.7% to 5,958.38 points, and the Nasdaq 100 gained 0.4% to close at 21,427.94 points. This marks significant weekly gains for all three indices, driven by a temporary resolution in the US-China trade dispute earlier in the week. However, the University of Michigan's consumer sentiment index for May fell short of expectations. Consumer sentiment in the US fell to 50.8 in May, down from 52.2 in April. This marks the second-lowest reading on record, with heightened inflation expectations driven by tariffs being a significant factor.

China factory output shows resilience, retail sales disappoint

China's industrial output in April grew 6.1% year-on-year, down from 7.7% in March but exceeding expectations of 5.5%, indicating resilience despite the US trade war. Meanwhile, retail sales rose 5.1%, missing forecasts and reflecting weaker consumer demand. The property sector remains sluggish, with home prices stagnant and investment declining. While a recent temporary de-escalation of trade tensions may offer temporary relief, ongoing uncertainties are likely to necessitate further policy support to sustain economic growth. Chinese stocks saw moderate losses Monday morning with Hong Kong’s Hang Seng Index slipping 0.2% and mainland China’s CSI 300 dropping 0.3%. Stocks elsewhere in the Asia-Pacific region were trading lower as traders digested the Moody’s downgrade of the US credit rating. Japan’s Nikkei 225 was down 0.7%, while Korea’s Kospi fell 0.9%. Australia’s S&P/ASX 200 was 0.6% lower.

Central bank decisions and inflation data in focus

This week, central bank decisions and inflation data dominate the market’s focus. On Tuesday, the People's Bank of China and the Reserve Bank of Australia announce their interest rate decisions, followed by Canadian inflation data. Wednesday brings UK Consumer Price Index data, while Germany releases its GDP figures on Friday. Additionally, Services Purchasing Managers’ Indices from many of the world’s largest economies will be released on Thursday.

Corporate and economic calendar

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: euro-area Harmonised Index of Consumer Prices (11:00), German Bundesbank monthly report (12:00).

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