[b]Date: 19th May 2025.[/b]
[b]Global Markets Slide After US Credit Rating Downgrade, Weak Chinese Data Add to Investor Jitters.[/b]
Asian markets fell today while US futures and the dollar weakened, as global investors digested Moody’s downgrade of the US sovereign credit rating. The move came in response to the US government's persistent struggle to control rising debt, currently sitting at $36 trillion.
US Credit Rating Downgrade Sends Ripples Through Global Markets
Moody’s cut the US sovereign credit score from its long-held AAA rating to Aa1 — the first downgrade since 1917. The rating agency cited worsening fiscal conditions, a widening deficit, and increasing concerns over the government's capacity to manage its debt obligations. It follows earlier warnings in 2023 and echoes similar concerns raised by Fitch and S&P in previous years.
The downgrade hit global sentiment hard. The futures for the S&P 500 slid 0.9%, while those for the Dow Jones Industrial Average declined 0.6%. The US dollar weakened, dipping to 145.14 yen from 145.65 yen, while the euro remained flat at $1.1183.
Asian Markets Under Pressure Amid Weak China Data
Chinese equities slipped after fresh data revealed slower-than-expected economic growth. April retail sales in China rose just 5.1% year-on-year, missing forecasts, while industrial output growth eased to 6.1% from 7.7% in March. The slowdown raises concerns over excess inventories and reduced domestic demand, particularly in the wake of the ongoing US-China trade tensions.
The Hang Seng in Hong Kong fell 0.7% to 23,184.74, and Shanghai’s Composite Index edged down 0.2% to 3,361.72. Japan’s Nikkei 225 dropped 0.4%, Korea’s Kospi lost 1%, and Taiwan’s Taiex shed 0.8%. Australia’s ASX 200 declined 0.1%.
Adding to the pessimism, China’s property market showed no signs of recovery, with new home prices unchanged in April, marking nearly two years of stagnant growth despite government support efforts.
Trade War Uncertainty Looms Over Markets
Tensions between the US and its trading partners continue to add volatility. Treasury Secretary Scott Bessent warned that President Donald Trump would impose tariffs on countries not negotiating in ‘good faith.’ Although Bessent did not clarify what qualifies as ‘good faith,’ he stated that letters outlining tariff rates would be sent to non-compliant nations.
Trump has already shifted tariff rates multiple times this year. In April, he reduced most tariffs to 10% for 90 days to encourage negotiations, while tariffs on Chinese imports were adjusted to 30%.
Despite last week’s 90-day standstill agreement between the US and China, investor sentiment remains fragile amid concerns over Trump’s unpredictable trade policies.
Wall Street Rallies but Risks Remain
Despite the looming economic headwinds, Wall Street closed higher last week. The S&P 500 gained 0.7% to 5,958.38, bringing it within 3% of its February all-time high. The Dow climbed 0.8% to 42,654.74, while the Nasdaq rose 0.5% to 19,211.10. Optimism over potential tariff rollbacks helped fuel the rally, but fears of a recession and stubborn inflation still weigh heavily.
Moody’s downgrade also underscores long-term structural challenges for the US economy, as successive administrations have failed to rein in government spending.
Consumer Sentiment, Inflation Expectations Worsen
The University of Michigan’s latest consumer sentiment index showed another decline in May, though the pace of deterioration slowed. More troubling, Americans now expect inflation to reach 7.3% over the next year, up from 6.5% the month before, further complicating the Federal Reserve’s path toward rate cuts.
Hope remains that softer inflation readings and slowing economic activity could eventually prompt the Fed to ease monetary policy,a key support for markets facing trade shocks and fiscal uncertainty.
Gold Gains on Safe-Haven Demand
Gold prices edged higher as investors turned to safe-haven assets amid mounting US fiscal concerns. Spot gold rose 0.5% to $3,218.30 an ounce in Singapore after briefly surging as much as 1.4% earlier in the session. The Bloomberg Dollar Spot Index slipped 0.2%.
Moody’s downgrade of the US credit rating supported gold’s appeal. The precious metal, which hit record highs above $3,500 an ounce last month, remains up over 20% this year despite recent pullbacks driven by easing geopolitical tensions.
Oil Prices Dip on Weak Data and Credit Worries
Oil prices fell Monday following the US credit rating downgrade and underwhelming Chinese economic data. Brent crude slipped 0.5% to $65.06 a barrel, while US West Texas Intermediate (WTI) dropped 0.4% to $62.23. The more actively traded July WTI contract also fell 0.5% to $61.66.
While the recent truce between the US and China initially lifted crude prices, concerns over the durability of the agreement and China’s faltering recovery have kept investors cautious.
Corporate Highlights: Mergers and Market Moves
In corporate news, Charter Communications rose 1.8% after announcing a merger with Cox Communications. The combined entity will retain the Cox name and be headquartered in Stamford, Connecticut.
Nvidia-backed CoreWeave jumped 22.1% after the tech giant increased its stake in the AI cloud computing firm from just under 6% to 7%.
Meanwhile, US-listed shares of Novo Nordisk fell 2.7% after the company announced CEO Lars Fruergaard Jørgensen will step down amid recent market challenges, despite the popularity of its Wegovy weight-loss drug.
Outlook: Uncertainty Ahead
With the US credit rating downgrade, wavering trade relationships, and mixed economic signals from China, financial markets are likely to remain volatile. While some positive inflation data could support a dovish Fed pivot later in the year, uncertainty over global trade policies and fiscal stability will continue to dominate investor sentiment.
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[b]Please note that times displayed based on local time zone and are from time of writing this report.[/b]
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[b]Andria Pichidi
HFMarkets[/b]
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