US equity-index futures fell, and the Treasury yield curve steepened after Moody's Ratings downgraded the US government's credit rating from AAA to AA1, citing a widening budget deficit that shows few signs of improvement. Longer-dated Treasury yields rose, reaching the psychologically significant 5% mark. A measure of the dollar weakened by 0.2%. Asian stock markets declined despite China's industrial output growing faster than expected in April. Gold prices increased as concerns over the US economic outlook and budget deficit heightened demand for this safe-haven asset. The downgrade could exacerbate Wall Street's concerns regarding the US sovereign bond market and revive anxiety over a potential 'Sell America' sentiment triggered by President Donald Trump’s trade war. This rating cut comes as discussions continue in Congress over more unfunded tax cuts, while the economy appears poised for a slowdown as Trump disrupts long-standing partnerships and renegotiates trade agreements. Moody’s has joined Fitch Ratings and S&P Global Ratings in assigning a grade to the US economy below the top AAA level. This one-notch downgrade follows Moody’s shift to a negative outlook on the US rating over a year ago. The credit agency now indicates a stable outlook but stated that while the US possesses significant economic and financial strengths, these no longer fully counterbalance the deterioration in fiscal metrics. Treasury Secretary Scott Bessent downplayed worries regarding the US government debt and the inflationary effects of tariffs, asserting that the Trump administration is committed to reducing federal spending and fostering economic growth. On Monday, 10-year Treasury yields increased by four basis points to 4.52%, and 30-year yields rose approximately six basis points to 5.00%. A breakthrough past the 5% mark for the longer-dated benchmark would bring levels last encountered in 2023 into focus, where they peaked at 5.18%, the highest since 2007. Shorter-term yields are more responsive to the trajectory of US interest rates, while longer-term yields are influenced by expectations concerning the scale of America’s substantial debt.
Politics will dominate the agenda in the coming week, with a UK-EU summit on Monday and a G7 meeting of finance ministers and central bankers. Chinese economic activity data for April is expected to remain resilient, though there are concerns about potential slowdowns in May’s European PMIs. Despite this, data has been stronger than anticipated, leading to reduced expectations for further ECB rate cuts.
United States: Positive 2Q outlook, but trade challenges linger
Recession risks have eased due to progress on trade deals and the ongoing strength of consumer demand and labor markets. While markets remain sensitive to developments in trade negotiations and political statements, the overall economic outlook is improving. Recent tariff de-escalations and evidence of resilience in key economic indicators contribute to this optimism, though uncertainties persist for the second half of the year.
Euro Area: Concerns over front-loading and May survey results
The reduction of tariff tensions between the US and China has led markets to scale back expectations for ECB rate cuts to just two more this year. Given the improved trade environment and resilient data, the necessity of a July rate cut appears less certain, with the ECB potentially pausing after June to assess further developments. Attention will shift to May’s survey data, including flash PMIs and the German Ifo and French INSEE indices, which are expected to show slight declines. Market consensus remains more optimistic than our outlook.
United Kingdom: UK-EU summit unlikely to deliver major breakthroughs
Despite a busy week for data releases, the UK-EU summit on Monday will take center stage. A defense agreement is likely to be signed, but broader negotiations will continue. The economic impact of these agreements is modest, with potential GDP growth of just 0.3-0.7 percentage points over 10 years. More significant growth would require joining the Customs Union or single market, which the current government opposes. On the data front, April’s CPI release will be critical, reflecting annual household bill updates. Higher energy costs are expected to drive headline inflation up by 0.7 percentage points to 3.3% year-on-year, while service inflation is forecast to rise modestly by 0.1 percentage points to 4.8%. Ongoing uncertainty is likely to weigh on May’s PMIs.
Asia Pacific: Monetary policy shifts and resilient data
Following the PBoC’s easing, China’s Loan Prime Rates (LPRs) are expected to drop by 10 basis points. The Reserve Bank of Australia (RBA) is likely to cut its policy rate due to weak inflation and an uncertain growth outlook, while Bank Indonesia (BI) is expected to hold rates steady to address currency concerns. In terms of data, China’s industrial production and retail sales likely moderated amid US tariffs but remained resilient, with fixed asset investment holding steady. Japan’s core CPI likely rose due to higher energy prices, while the core-core reading remained stable. Taiwan’s export orders and industrial production stayed strong, though signs of softening have begun to emerge.
FX Options Expiries For 10am New York Cut
(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.1130 (253M), 1.1150-55 (514M), 1.1175-80 (240M)
USD/CHF: 0.8420-25 (290M)
GBP/USD: 1.3300 (560M). EUR/GBP: 0.8500-15 (548M)
AUD/USD: 0.6355 (595M), 0.6480 (310M), 0.6525 (563M)
NZD/USD: 0.5915 (1.1BLN)
AUD/NZD: 1.0785 (361M), 1.0925 (200M)
USD/CAD: 1.3985 (587M)
USD/JPY: 145.00 (474M), 145.55 (510M), 146.45-50 (1.4BLN), 147.00 (1.5BLN)
EUR/JPY: 162.25 (410M), 1.6235-40 (250M)
CFTC Data As Of 16/5/25
Speculators have reduced their net short position in CBOT US Treasury bonds futures by 18,160 contracts, bringing the total to 77,629. They also cut their net short position in CBOT US Ultrabond Treasury futures by 3,553 contracts, now at 261,222. However, they increased their net short position in CBOT US 2-year Treasury futures by 1,439 contracts, which now stands at 1,222,232. The net short position for CBOT US 5-year Treasury futures was decreased by 116,453 contracts to 2,180,043, while the net short for CBOT US 10-year Treasury futures was reduced by 62,817 contracts to 890,351.
In the equity sector, fund speculators boosted their net short position in the S&P 500 CME by 31,350 contracts to 287,281, whereas equity fund managers raised their net long position in the same index by 44,461 contracts to 857,623.
The net long position for the Japanese yen is at 172,268 contracts, for the Euro it stands at 84,774 contracts, and for the British pound, it is 27,216 contracts. The Swiss franc has a net short position of -23,069 contracts, while Bitcoin's net short position is -827 contracts.
Technical & Trade Views
SP500 Pivot 5750
Daily VWAP bearish
Weekly VWAP bullish
Above 5790 target 5998
Below 5500 target 5385
EURUSD Pivot 1.11
Daily VWAP bullish
Weekly VWAP bearish
Above 1.12 target 1.19
Below 1.1070 target 1.0945
GBPUSD Pivot 1.28
Daily VWAP bullish
Weekly VWAP bullish
Above 1.34 target 1.38
Below 1.29 target 1.27
USDJPY Pivot 147.70
Daily VWAP bearish
Weekly VWAP bullish
Above 1.52 target 153.80
Below 146.53 target 139
XAUUSD Pivot 3100
Daily VWAP bearish
Weekly VWAP bullish
Above 3200 target 3640
Below 3000 target 2950
BTCUSD Pivot 96.7k
Daily VWAP bullish
Weekly VWAP bullish
Above 97k target 105k
Below 95k target 65kDaily Market Outlook, May 19, 2025
US equity-index futures fell, and the Treasury yield curve steepened after Moody's Ratings downgraded the US government's credit rating from AAA to AA1, citing a widening budget deficit that shows few signs of improvement. Longer-dated Treasury yields rose, reaching the psychologically significant 5% mark. A measure of the dollar weakened by 0.2%. Asian stock markets declined despite China's industrial output growing faster than expected in April. Gold prices increased as concerns over the US economic outlook and budget deficit heightened demand for this safe-haven asset. The downgrade could exacerbate Wall Street's concerns regarding the US sovereign bond market and revive anxiety over a potential 'Sell America' sentiment triggered by President Donald Trump’s trade war. This rating cut comes as discussions continue in Congress over more unfunded tax cuts, while the economy appears poised for a slowdown as Trump disrupts long-standing partnerships and renegotiates trade agreements. Moody’s has joined Fitch Ratings and S&P Global Ratings in assigning a grade to the US economy below the top AAA level. This one-notch downgrade follows Moody’s shift to a negative outlook on the US rating over a year ago. The credit agency now indicates a stable outlook but stated that while the US possesses significant economic and financial strengths, these no longer fully counterbalance the deterioration in fiscal metrics. Treasury Secretary Scott Bessent downplayed worries regarding the US government debt and the inflationary effects of tariffs, asserting that the Trump administration is committed to reducing federal spending and fostering economic growth. On Monday, 10-year Treasury yields increased by four basis points to 4.52%, and 30-year yields rose approximately six basis points to 5.00%. A breakthrough past the 5% mark for the longer-dated benchmark would bring levels last encountered in 2023 into focus, where they peaked at 5.18%, the highest since 2007. Shorter-term yields are more responsive to the trajectory of US interest rates, while longer-term yields are influenced by expectations concerning the scale of America’s substantial debt.
Politics will dominate the agenda in the coming week, with a UK-EU summit on Monday and a G7 meeting of finance ministers and central bankers. Chinese economic activity data for April is expected to remain resilient, though there are concerns about potential slowdowns in May’s European PMIs. Despite this, data has been stronger than anticipated, leading to reduced expectations for further ECB rate cuts.
United States: Positive 2Q outlook, but trade challenges linger
Recession risks have eased due to progress on trade deals and the ongoing strength of consumer demand and labor markets. While markets remain sensitive to developments in trade negotiations and political statements, the overall economic outlook is improving. Recent tariff de-escalations and evidence of resilience in key economic indicators contribute to this optimism, though uncertainties persist for the second half of the year.
Euro Area: Concerns over front-loading and May survey results
The reduction of tariff tensions between the US and China has led markets to scale back expectations for ECB rate cuts to just two more this year. Given the improved trade environment and resilient data, the necessity of a July rate cut appears less certain, with the ECB potentially pausing after June to assess further developments. Attention will shift to May’s survey data, including flash PMIs and the German Ifo and French INSEE indices, which are expected to show slight declines. Market consensus remains more optimistic than our outlook.
United Kingdom: UK-EU summit unlikely to deliver major breakthroughs
Despite a busy week for data releases, the UK-EU summit on Monday will take center stage. A defense agreement is likely to be signed, but broader negotiations will continue. The economic impact of these agreements is modest, with potential GDP growth of just 0.3-0.7 percentage points over 10 years. More significant growth would require joining the Customs Union or single market, which the current government opposes. On the data front, April’s CPI release will be critical, reflecting annual household bill updates. Higher energy costs are expected to drive headline inflation up by 0.7 percentage points to 3.3% year-on-year, while service inflation is forecast to rise modestly by 0.1 percentage points to 4.8%. Ongoing uncertainty is likely to weigh on May’s PMIs.
Asia Pacific: Monetary policy shifts and resilient data
Following the PBoC’s easing, China’s Loan Prime Rates (LPRs) are expected to drop by 10 basis points. The Reserve Bank of Australia (RBA) is likely to cut its policy rate due to weak inflation and an uncertain growth outlook, while Bank Indonesia (BI) is expected to hold rates steady to address currency concerns. In terms of data, China’s industrial production and retail sales likely moderated amid US tariffs but remained resilient, with fixed asset investment holding steady. Japan’s core CPI likely rose due to higher energy prices, while the core-core reading remained stable. Taiwan’s export orders and industrial production stayed strong, though signs of softening have begun to emerge.
FX Options Expiries For 10am New York Cut
(1BLN+ represents larger expiries, more magnetic when trading within daily ATR)
EUR/USD: 1.1130 (253M), 1.1150-55 (514M), 1.1175-80 (240M)
USD/CHF: 0.8420-25 (290M)
GBP/USD: 1.3300 (560M). EUR/GBP: 0.8500-15 (548M)
AUD/USD: 0.6355 (595M), 0.6480 (310M), 0.6525 (563M)
NZD/USD: 0.5915 (1.1BLN)
AUD/NZD: 1.0785 (361M), 1.0925 (200M)
USD/CAD: 1.3985 (587M)
USD/JPY: 145.00 (474M), 145.55 (510M), 146.45-50 (1.4BLN), 147.00 (1.5BLN)
EUR/JPY: 162.25 (410M), 1.6235-40 (250M)
CFTC Data As Of 16/5/25
Speculators have reduced their net short position in CBOT US Treasury bonds futures by 18,160 contracts, bringing the total to 77,629. They also cut their net short position in CBOT US Ultrabond Treasury futures by 3,553 contracts, now at 261,222. However, they increased their net short position in CBOT US 2-year Treasury futures by 1,439 contracts, which now stands at 1,222,232. The net short position for CBOT US 5-year Treasury futures was decreased by 116,453 contracts to 2,180,043, while the net short for CBOT US 10-year Treasury futures was reduced by 62,817 contracts to 890,351.
In the equity sector, fund speculators boosted their net short position in the S&P 500 CME by 31,350 contracts to 287,281, whereas equity fund managers raised their net long position in the same index by 44,461 contracts to 857,623.
The net long position for the Japanese yen is at 172,268 contracts, for the Euro it stands at 84,774 contracts, and for the British pound, it is 27,216 contracts. The Swiss franc has a net short position of -23,069 contracts, while Bitcoin's net short position is -827 contracts.
Technical & Trade Views
SP500 Pivot 5750
Daily VWAP bearish
Weekly VWAP bullish
Above 5790 target 5998
Below 5500 target 5385
EURUSD Pivot 1.11
Daily VWAP bullish
Weekly VWAP bearish
Above 1.12 target 1.19
Below 1.1070 target 1.0945
GBPUSD Pivot 1.28
Daily VWAP bullish
Weekly VWAP bullish
Above 1.34 target 1.38
Below 1.29 target 1.27
USDJPY Pivot 147.70
Daily VWAP bearish
Weekly VWAP bullish
Above 1.52 target 153.80
Below 146.53 target 139
XAUUSD Pivot 3100
Daily VWAP bearish
Weekly VWAP bullish
Above 3200 target 3640
Below 3000 target 2950
BTCUSD Pivot 96.7k
Daily VWAP bullish
Weekly VWAP bullish
Above 97k target 105k
Below 95k target 65kPublication date:
2025-05-19 10:45:04 (GMT)
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