Another hair-raising start to the week of trading, with US assets coming under renewed pressure, not from tariffs this time, but from perhaps worse concerns about US debt. In Asian trading, US Treasury yields Longer-term US yields rose to the psychological level of 5%, futures on Wall Street are down by about 1%, while the dollar is decreasing after that Moody's Ratings announced Friday night that it had revoked its highest credit rating on the U.S. government, dropping the country from Aaa to Aa1. The agency, following its peers, blamed U.S. politicians for a rapidly growing budget deficit, which he says shows no signs of abating.
Across the Atlantic l'EUR consolidates thanks to the surprising victory of the pro-EU candidate in the Romanian elections, together with the victories of the centrist parties in Poland and Portugal. Maxi-coupon detachment at business square, for an impact of approximately 2% on total capitalization.
US Debt Concerns: 30-Year Treasury Yield Rises to 5%
The rating cut has lifted the veil and reinforced investors' growing concerns about the bond market sovereign of the United States who must support the gigantic debt national amounting to 36 trillion dollars, in the hours in which Capitol Hill is discussing about further unfunded tax cuts e the economy looks set to slow down. All this while Trump is upending long-standing trade partnerships and renegotiating trade deals.
Today i Treasury yields a 10 years rose by four basis points to 4,52% and those equivalent to 30 years by about six basis points to 5,00%. A breakout of 5% for the longer-dated benchmark would bring back into play levels last seen in 2023, where they peaked at 5,18%, the highest since 2007.
Trump needs the revenue from duties partly to finance his tax cut package, which just passed through a House of Representatives committee and could be voted on by the end of this week. This massive bill is estimated to add between 3.000 to 5.000 billion dollars in debt national in the space of a decade: and this was precisely one of the reasons why Moody's downgraded the U.S. credit rating. Ratings have not mattered much since the 2008 financial crisis, when the subprime mortgage disaster tarnished the reputations of some agencies and funds abandoned AAA mandates. Yet the news appears to have struck a nerve among foreign investors, already dismayed by the unpredictable nature of U.S. fiscal policy.
Moody's has the outlook for the U.S. down from negative to stable and expects the federal deficit to widen to nearly 9% of GDP by 2035, from 6,4% last year, "driven primarily by rising debt interest payments, rising entitlement spending and relatively low revenue generation." Moody's first gave the U.S. its impeccable "Aaa" rating in 1919 and was the last of the three major credit agencies to downgrade it after the action S&P and in 2011 Fitch in 2023.
Friday the main indices of Wall Street had risen for a fifth straight day, buoyed by the tariff truce between the United States and China signed early last week, even as data from the University of Michigan showed its consumer confidence index fell further in May, while one-year inflation expectations rose to 7,3% from 6,5% last month. Indexes up: Dow 0,78%, S&P 500 0,70%, Nasdaq 0,52%.
Dollar falls against major counterparts. Euro returns to 1,12
The US dollar reacted to Moody's downgrade by falling to a one-week low against the yen, safe haven currency, up 0,6% to 144,80 yen. The Australian dollar recovered after three days of declines despite a rate cut by the Reserve Bank of Australia on Tuesday being widely expected. The euro gained as much as 0,3% to $1,1199. The dollar fell 0,2% to $0,8358 Swiss francs, another safe haven currency. The GBP gained 0,1% to $1,3297.
Sales are dropping on'gold, which is trading at $3.183 an ounce, down sharply by 1,79%. Petroleum (Light Sweet Crude Oil) continued the session higher and advanced to 62,41 dollars per barrel.
Asia down, China retail sales still weak
Asia Pacific stocks are weak at the start of the week, also in a bad mood due to the Moody's rating cut, but also due to the still weak retail sales in China that have highlighted how far the country has to go to move from an export-driven economy to one driven by domestic demand. It is clear that consumers do not feel the need to buy, and it is not a given that Beijing wants the situation to change. Something is not working: on the one hand Trump is essentially telling Americans that they must live with fewer toys and pencils, while he is promoting trade policies that should indirectly push Chinese consumers to buy more, but they have no desire to do so. On the other hand, Chinese industrial production grew by 6,1% on an annual basis in April, against expectations of +5,5%. Also in China, the decline in house prices accelerated in April: in the 70 cities of reference, net of state-subsidized housing, average values fell by 0,12% compared to March.
The bag of Tokyo loses 0,5% and lo yen strengthens against the dollar at 145,2. Kospi Index of Alone -1%. Chinese stock markets down: Hang Seng Hong Kong -0,6%, CSI 300 of price lists Shanghai and Shenzhen -0,4%. Taiex of Taipei -0,8%.
Europe-United States Dialogues
With the US "we have a special and very close relationship, in particular we have the largest trade relationship in the world with over 1,5 trillion dollars a year. It is important now that we have exchanged proposals that our experts are evaluating thoroughly", to "reach a good agreement for both parties". This was stated yesterday by the President of the European Commission, Ursula von der Leyen, before the meeting at Palazzo Chigi with the Vice President of the United States JD Vance and the Italian Prime Minister, Giorgia Meloni. On defense, he added: “I am aware that Member States need to increase investments and that is why the Commission has allowed the use of 800 million euros over the next four years. A strong Europe means a stronger NATO”.
European stock markets firm. Piazza Affari maxi coupon detachment
Le European stock exchanges they are seen to open tonics with a Business Square expected to take a large lead over the rest of Europe thanks to the maxi coupon detachment today for over 20 companies in the main basket of the Italian stock exchange, equal to almost 2% of the total capitalization. The future on the Eurostoxx50 is +0,07% at the start of the session despite the US futures in sharp decline (-0,75% for the Dow Jones and -0,96% for the S&P500).
TIM. The proposed changes to the bylaws, including the expansion of the corporate purpose, will be submitted to the board of directors at its meeting on May 23, a statement said. Last week, Reuters reported that the company was considering expanding its corporate purpose to include insurance, digital payments and energy.
UniCredit. At the end of the third week of the offer, subscriptions to UniCredit's takeover bid on Banco BPM were equal to 0,016615% of the capital. Germany does not expect UniCredit to launch a bid for Commerzbank at the moment, as German Chancellor Friedrich Merz said on Saturday evening when meeting with Prime Minister Giorgia Meloni in Rome. No comment from UniCredit on the rumors of Republic e Courier who over the weekend reiterated their request to Consob for a suspension of the takeover bid for Banco Bpm.
Illimity. The voluntary totalitarian takeover bid promoted by Banca Ifis has begun; it ends on June 27.
At 11 am, the Eurozone inflation data for the end of April (preliminary: +0,6% month-on-month, +2,2% year-on-year) and core inflation for the end of April (preliminary: +2,7% year-on-year) are on the agenda. At the same time, the European Commission publishes its spring estimates.
