U.S. credit grating
LONDON, May 19 (Reuters) - What matters in U.S. and global markets today
By Mike Dolan, opens new tab, Editor-At-Large, Financial Industry and Financial Markets
U.S. Treasury Secretary Scott Bessent responded "who cares?" to news that the U.S. had lost its last top-notch credit rating. Bond markets might beg to differ.
In today's deep dive, I discuss why investors should still be skeptical of sky-high U.S. stock market valuations. I get into all the market reactions below.
Today's Market Minute
* The European Union and Britain reached a tentative agreement on defence and security, fisheries and youth mobility ahead of a EU-UK summit on Monday, paving the way for British firms to participate in large EU defence contracts.
* U.S. President Donald Trump's sweeping tax-cut bill, which had been stalled for days by Republican infighting over spending cuts, won approval from a key congressional committee on Sunday in a rare victoryfor Trump and House Speaker Mike Johnson.
* The U.S. sovereign downgrade by Moody's has exacerbated investor worries about a looming debt time-bomb that could spur bond market vigilantes who want to see more fiscal restraint from Washington.
* The possible lifting of U.S. sanctions on Iran's oil exports could deal a fatal blow to independent Chinese refineries that have thrived by processing Tehran's discounted crude, while also putting further downward pressure on oil prices. Read the latest analysis from Reuters columnist Ron Bousso.
* Syria is seeking to reintegrate itself into the global economy after spending decades as a pariah under the rule of Bashar al-Assad, raising the question of whether the new government in Damascus will be expected to repay the massive debts the prior regime incurred while fighting. Check out the column by sovereign debt experts Lee Buchheit and Mitu Gulati.
U.S. credit grating
The 30-year U.S. Treasury yield topped 5% to hit its highest since October 2023 after Moody's on Friday stripped the United States of its AAA sovereign credit rating. It was the last of the three main credit ratings agencies to do so.
Ten-year yields also jumped about five basis points from Friday's close, the dollar (.DXY), opens new tab slipped and Wall Street stock futures fell more than 1%.
Bessent used television interviews on Sunday to dismiss the downgrade, while also warning trade partners that they would get maximum tariffs if they did not offer deals in "good faith". This reignited trade tensions that had dissipated somewhat last week.
Trump added to corporate America's anxieties by insisting that Walmart (WMT.N), opens new tab "eat the tariffs" instead of blaming price increases on import duties imposed by his administration.
Bessent's dismissal of the downgrade may resonate with many, as the Moody's decision lagged behind the other agencies' actions and was predictable given warnings over the past year. Still, the downgrade comes at a sensitive time for the bond market, as the budget deficit looks set to continue ballooning.
Trump's sweeping tax cut bill, which had been stalled for days by Republican infighting over spending cuts, won approval from a House Budget Committee on Sunday.
At an unusual Sunday-night session, four hardline Republican conservatives who had blocked the legislation allowed the bill to move forward as they pressed for deeper spending cuts in closed-door talks with Republican leaders and White House officials.
The bill, which non-partisan analysts say would add $3-5 trillion to the nation's $36.2 trillion in debt over the next decade, is expected to go to a full house vote by the end of the month.
Moody's cited the rising debt, which it said was on track to reach 134% of GDP by 2035, for its decision to downgrade the U.S. credit rating. Some banks expect the annual deficit to rise above 7% of GDP next year.
Nervousness has also risen over the last month about the stability of foreign holdings of Treasuries.
March data on overseas ownership of Treasuries, also released late Friday, showed rising demand before the April 2 tariff sweep. But Chinese holdings fell by almost $20 billion during the month. And holders based in Britain, often seen as a proxy for hedge funds and offshore holdings, overtook China as the second largest grouping.
Bessent now heads to meet G7 finance ministers and central bankers in Canada this week for more talks. U.S. Vice President JD Vance and European Commission President Ursula von der Leyen met on Sunday to discuss the bilateral negotiation process.
Elsewhere, China's latest economic health check for April showed some resilience in industry, but some worrying misses in retail sales and the ailing property sector.
Chinese stocks ended in the red on Monday.
In Europe, the focus was on Britain agreeing to the most significant reset of ties with the European Union since Brexit. Britain removed some trade barriers and will collaborate on defence to help expand its economy and boost security on the continent.
Make sure to check out today's column, where I explain why the belief in perpetual U.S. market dominance seems increasingly improbable.
Chart of the day
This may not be a chart, strictly speaking, but this list speaks for itself. Moody's is the last of the three main credit ratings firms to strip the United States of its triple-A rating. Fewer and fewer countries have top-notch ratings from at least two of the agencies. The Top 10 in the list includes five European Union sovereigns, with a total of seven from the wider European continent. Canada, Australia and Singapore make up the rest.
Today's events to watch
* U.S. April leading economic indicator (8:30 AM EDT)
* Federal Reserve Vice Chair Philip Jefferson, New York Fed President John Williams, Dallas Fed chief Lorie Logan, Atlanta Fed boss Raphael Bostic and Minneapolis Fed chief Neel Kashkari all speak.
* UK-European Union summit on post-Brexit reset agreement
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, opens new tab, is committed to integrity, independence, and freedom from bias.
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