No more excuses, US politicians deserve their ratings downgrade
Moody's recent downgrade of US government debt wasn't only well justified — it was arguably long overdue. Despite America's economic strength and the dollar's global supremacy, the decision to cut the debt rating to AA1 was unarguable: America's fiscal position is deteriorating, both relative to its history and to other countries. Crucially, there's no political appetite to change course.
The numbers speak for themselves. America's budget deficit stands at 6.4 per cent of GDP, a level typically seen only during wartime or severe recessions. This adds to a national debt rapidly approaching its historical peak, exacerbated by the Great Recession, the Covid-19 pandemic, and persistently high structural deficits. Startlingly, America's net interest payments now roughly match the country's mammoth defence budget. By 2035, Moody's projects
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Rhyl Journal
35 minutes ago
- Rhyl Journal
Geologists unveil UK ‘super regions' with best potential for transition projects
The findings, published by the British Geological Survey (BGS), show the UK has an incredibly diverse subsurface, which can play a key role in supporting efforts to reach the country's legally binding climate goals. Many areas have geology that is well suited to certain net zero technologies, including shallow geothermal installations or critical minerals occurrences. But BGS scientists say eight super regions contain subsurface formations and conditions that are favourable to multiple different technologies within a relatively small area. These are Northern Ireland, the Scottish Central Belt, north-east England, north-west England, the South Yorkshire and Humber region, the East Midlands and East Anglia, South Wales and south-west England. Here, the subsurfaces can provide a sustainable heat source for geothermal energy, geological formations for secure storage of energy and carbon dioxide (CO2), rocks containing important resources for mineral extraction, and suitable geological foundation conditions for onshore and offshore wind infrastructure projects, the scientists said. For example, south-west England has significant deep geothermal resources offering opportunities for sustainable heat and power generation while its sedimentary basins provide potential sites for CCS and energy storage, they added. Meanwhile, the Scottish Central Belt boasts a complex geology, including sedimentary reservoir rocks and significant igneous intrusions, abundant geothermal resources, abandoned coal mines and a legacy of subsurface data, they said. The BGS said its findings offer crucial insights and a road map for decision makers, ministers and land managers looking to maximise return on investment in the energy transition. The geologists assessed that strategic spatial planning for such technologies in these areas can help unlock an estimated £40 billion of annual investment and support the Government's target of creating 650,000 jobs through renewable energy by 2030. But they added that further investigation will be required to fully establish each of the super region's true potential, ensure safe deployment of each technology, and understand environmental impact. Michelle Bentham, BGS chief scientist for decarbonisation and resource management, said: 'The UK is incredibly diverse in its geology. 'Because it's out of sight, geology gets a little bit forgotten about. 'And I don't think people realise how blessed we are in the UK, if you like, in terms of the geology that could really help us have a sustainable future. 'But you can really see the difference that geology could make to reaching Government goals in terms of net zero, energy provision, clean energy.' Ms Bentham said funding and the policy landscape may have been barriers to rolling out technologies such as CCS and geothermal energy across the UK. 'In Europe, geothermal energy is used much more widely. In the UK, we don't use it as widely and it's always been a bit of a Cinderella of clean energy technologies,' she said. 'And in the North Sea, we could potentially become a hub for carbon storage in Europe for countries that don't have the right geology who are trying to decarbonise,' she added. The BGS contributed to the consultation on the Government's upcoming land use framework, which looks at how England's finite land can meet the escalating demands of food security, clean energy, nature restoration and new homes. But the framework is focusing more on surface demands, with some scope for shallow subsurface areas such as geothermal infrastructure. Ms Bentham said strategic spatial planning for the subsurface could also help optimise the UK's resources for the energy transition. For example, it could stop decision makers from locking into one technology – such as wind farms or CCS – in one area where another could have yielded more benefits, or where multiple technologies could have been deployed. 'Like the map, it's not one technology that's going to be the answer,' she said. 'That's why we need this combination to give us flexibility.' The BGS highlighted that the data underpinning its research has been shaped by geologists' current understanding of the subsurface, adding that a few parts of the country have been less extensively surveyed than others, and more research is required to fully assess their potential.
The Independent
an hour ago
- The Independent
Asian shares gain as investors keep an eye on China-US trade talks
Asian shares were mostly higher on Tuesday as investors kept an eye on China-U.S. trade talks that might help stave off a recession. A second day of talks was planned after U.S. and Chinese officials met in London for negotiations over various issues. The hope is that they can eventually reach a deal to reduce painfully high tariffs against each other. Most of the tariff hikes imposed since U.S. President Donald Trump escalated his trade war are paused to allow trade in everything from tiny tech gadgets to enormous machinery to continue. In Asian trading, Tokyo's Nikkei 225 gained 1% to 38,473.97, while the Kospi in South Korea jumped 0.9% to 2,881.40. Hong Kong's Hang Seng edged 0.2% higher, to 24,242.03 and the Shanghai Composite index was up 0.1% at 3,403.51. In Taiwan, the Taiex surged 2%. Australia's S&P/ASX 200 advanced 0.7% to 8,578.50. On Monday, the S&P 500 edged up just 0.1% and at 6,005.88 is within 2.3% of its record set in February. The Dow Jones Industrial Average slipped by 1 point, which is well below 0.1%, to 42,761.76. The Nasdaq composite added 0.3% to 19,591.24. Hopes that President Donald Trump will lower his tariffs after reaching trade deals with countries around the world have helped the S&P 500 has rally back after it dropped roughly 20% from its record two months ago. It's back above where it was when Trump shocked financial markets in April with his wide-ranging tariff announcement on what he called 'Liberation Day.' Some of the market's biggest moves came from the announcement of big buyout deals. Qualcomm rallied 4.1% after saying it agreed to buy Alphawave Semi in a deal valued at $2.4 billion. IonQ, meanwhile, rose 2.7% after the quantum computing and networking company said it agreed to purchase Oxford Ionics for nearly $1.08 billion. On the losing side of Wall Street was Warner Bros. Discovery, which flipped from a big early gain to a loss of 3% after saying it would split into two companies. One will get Warner Bros. Television, HBO Max and other studio brands, while the other will hold onto CNN, TNT Sports and other entertainment, sports and news television brands around the world, along with some digital products. Tesla recovered some of its sharp, recent drop. The electric vehicle company tumbled last week as Elon Musk's relationship with Trump broke apart, and it rose 4.6% Monday after flipping between gains and losses earlier in the day. The frayed relationship could end up damaging Musk's other companies that get contracts from the U.S. government, such as SpaceX. Rocket Lab, a space company that could pick up business at SpaceX's expense, rose 2.5%. In the bond market, the yield on the 10-year Treasury eased to 4.48% from 4.51% late Friday. It fell after a survey by the Federal Reserve Bank of New York found that consumers' expectations for coming inflation eased a bit in May. Economists expect a report coming on Wednesday to show inflation across the country accelerated last month to 2.5% from 2.3%. The Fed has been keeping its main interest rate steady as it waits to see how much Trump's tariffs will raise inflation and how much they will hurt the economy. A persistent increase in expectations for inflation among U.S. households could drive behavior that creates a vicious cycle that only worsens inflation. In other dealings early Tuesday, U.S. benchmark crude oil picked up 31 cents to $65.60 per barrel. Brent crude, the international standard, also gained 31 cents, to $67.35. The dollar rose to 144.93 Japanese yen from 144.61 yen. The euro slipped to $1.1399 from $1.1421. ___ AP Business Writer Stan Choe contributed.
Reuters
an hour ago
- Reuters
Dollar floored as investors seek that extra hedge
ORLANDO, Florida, June 9 (Reuters) - All three major U.S. asset classes – stocks, bonds and the currency – have had a turbulent 2025 thus far, but only one has failed to weather the storm: the dollar. Hedging may be a major reason why. Wall Street's three main indices and the ICE BofA U.S. Treasury index are all slightly higher for the year to date, despite the post-'Liberation Day' volatility, while the dollar has steadily ground lower, losing around 10% of its value against a basket of major currencies and breaking long-standing correlations along the way. The dollar was perhaps primed for a fall. It's easy to forget, but only a few months ago the 'U.S. exceptionalism' narrative was alive and well, and the dollar scaling heights rarely seen in the past two decades. But that narrative has evaporated, as U.S. President Donald Trump's controversial economic policies and isolationist posture on the global stage have made investors reconsider their exposure to U.S. assets. But why is the dollar feeling the burn more than stocks or bonds? Non-U.S. investors often protect themselves against sharp currency fluctuations via the forward, futures or options markets. The difference now is that the risk premium being built into U.S. assets is pushing them – especially equity holders – to hedge their dollar exposure more than they have in the past. Foreign investors have long hedged their bond exposure, with dollar hedge ratios traditionally around 70% to 100%, according to Morgan Stanley, as currency moves can easily wipe out modest bond returns. But non-U.S. equity investors have been much more loath to pay for protection, with dollar hedge ratios averaging between 10% and 30%. This is partly because the dollar was traditionally seen as a 'natural' hedge against stock market exposure, as it would typically rise in 'risk off' periods when stocks fell. The dollar would also normally appreciate when the U.S. economy and markets were thriving – the so-called 'Dollar Smile' – giving an additional boost to U.S. equity returns in good times. A good barometer of global 'real money' investors' view on the dollar is how willing foreign pension and insurance funds are to hedge their dollar-denominated assets. Recent data on Danish funds' currency hedging is revealing. Danish funds' U.S. asset hedge ratio surged to around 75% from around 65% between February and April. According to Deutsche Bank analysts, that 10 percentage point rise is the largest two-month increase in over a decade. Anecdotal evidence suggests similar shifts are taking place across Scandinavia, the euro zone and Canada, regions where dollar exposure is also high. The $266 billion Ontario Teachers' Pension Plan reported a $6.9 billion foreign currency gain last year, mainly due to the stronger dollar. Unless the fund has increased its hedging ratio this year, it will be sitting on huge foreign currency losses. "Investors had embraced U.S. exceptionalism and were overweight U.S. assets. But now, investors are increasing their hedging," says Sophia Drossos, economist and strategist at the hedge fund Point72. And there is a lot of dollar exposure to hedge. At the end of March foreign investors held $33 trillion of U.S. securities, with $18.4 trillion in equities and $14.6 trillion in debt instruments. The dollar's malaise has upended its traditional relationships with stocks and bonds. Its generally negative correlation with stocks has reversed, as has the usually positive correlation with bonds. The divergence with Treasuries has gained more attention, with the dollar diving as yields have risen. But as Deutsche Bank's George Saravelos notes, the correlation breakdown with stocks is "very unusual". When Wall Street has fallen this year the dollar has fallen too, but at a much faster pace. And when Wall Street has risen the dollar has also bounced, but only slightly. This has led to the strongest positive correlation between the dollar and S&P 500 in years, though that's a bit deceptive, as the dollar is sharply down on the year while stocks are mildly stronger. Of course, what we could be seeing is simply a rebalancing. Saravelos estimates that global fixed income and equity managers' dollar exposure was at near record-high levels in the run-up to the recent trade war. This was a "cyclical" phenomenon over the last couple of years rather than a deep-rooted structural one based on fundamentals, meaning it could be reversed relatively quickly. But, regardless, the dollar's hedging headwind seems likely to persist. "Given the size of foreign holdings of both stocks and bonds, even a modest uptick in hedge ratios could prove a considerable FX flow," Morgan Stanley's FX strategy team wrote last month. "As long as uncertainty and volatility persist, we think that hedge ratios are likely to rise as investors ride out the storm." (The opinions expressed here are those of the author, a columnist for Reuters) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X.
