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Market Quick Take – 19 May 2025

Market drivers and catalysts

• Equities: US-China trade truce; Moody’s US downgrade; consumer sentiment low; Coinbase S&P inclusion
• Volatility: VIX at April lows; short-term gauges sharply down; limited immediate fear despite downgrade
• Digital assets: Bitcoin weekly record; BTC, ETH dip; altcoins weaker; crypto stocks rally
• Fixed Income: US long yields in focus after Moody’s downgrade of US treasuries sees sell-off worst at longest end of the yield curve.
• Currencies: USD weakens a bit further on Moody’s downgrade of US debt
• Commodities: Gold supported by downgrade, Crude remains stuck
• Macro events: China and Australia rate announcements

Macro data and headlines

• Moody's Ratings downgraded the US credit rating from Aaa to Aa1, citing growing worries over rising debt and deficits potentially harming the country's global capital appeal and raising borrowing costs. This aligns with similar actions by Fitch Ratings and S&P Global Ratings, marking the US below the top triple-A status. The downgrade follows Moody's shift to a negative outlook over a year ago, now revised to stable.
• The preliminary US May University of Michigan consumer sentiment survey, released Friday, fell to 50.8, its second-lowest level ever, with nearly 75% of respondents worried about tariffs. Consumers anticipate a 7.3% annual price increase next year, the highest since 1981, and 4.6% over the next five to ten years, the highest since 1991. Despite tariff concerns, recent data indicated limited inflationary pressures, with consumer prices excluding food and energy rising below expectations for the third consecutive month.
• China’s industrial output rose 6.1% y/y in April, exceeding expectations, while retail sales weakened below expectations to 5.1% y/y, highlighting governments challenges in boosting domestic consumption and confidence among households hurt by a prolonged property crisis, deflationary pressure and worries about unemployment

Macro calendar highlights (times in GMT)

0900 – Eurozone Final April CPI
1400 – US Apr. Leading Index
0100 – China Rate Announcement
0430 – Australia RBA Cash Target announcement

Earnings events

• Monday: Ryanair
• Tuesday: Home Depot, Palo Alto Networks
• Wednesday: TJX Companies, Lowes, Medtronic, Snowflake, Target
• Thursday: Intuit, Analog Devices, Workday, Autodesk, Copart

For all macro, earnings, and dividend events check Saxo’s calendar.

Equities

• US: US equities closed positively last week, with major indexes buoyed by easing US-China trade tensions. On Friday, the S&P 500 rose 0.7%, Nasdaq gained 0.4%, and the Dow jumped 331 points, wiping out year-to-date losses. A 90-day tariff truce restored market confidence, pushing S&P 500 back to positive yearly territory. However, sentiment weakened slightly as consumer sentiment fell to 50.8, second-lowest on record, with inflation expectations climbing to 7.3%. Alphabet (+1.2%) advanced, while Meta slipped 0.5%. Coinbase surged 9% ahead of its S&P 500 debut today. Moody’s downgrade of US debt to Aa1 triggered futures losses early Monday.
• Europe: European markets closed the week cautiously optimistic, with Frankfurt’s DAX up 0.3% to a record high of 23,767, marking its fifth consecutive weekly gain. EU efforts toward broader tariff reduction deals buoyed sentiment, though caution persisted ahead of weekend geopolitical developments. Rheinmetall led gains (+2.4%), supported by Deutsche Borse, Deutsche Telekom, and SAP. Major decliners included E.ON (-2.9%) and BASF (-2.3%). Monday sees cautious trading expected, with mixed pre-market indications as traders assess ongoing geopolitical discussions and April inflation data.
• UK: The FTSE 100 climbed 0.6% Friday, driven by gains in British American Tobacco (+3.8%) and GlaxoSmithKline (+2.6%). However, sentiment weakened early Monday following Moody’s downgrade of US debt, dragging futures lower. Market attention shifts to the UK-EU summit in London aimed at restoring closer economic ties post-Brexit, alongside ongoing corporate developments including BT's potential divestment of TNT Sports to Warner Bros Discovery.
• Asia: Asian stocks faced headwinds Monday following Moody’s US credit downgrade, mixed Chinese economic data, and ongoing geopolitical concerns. Hong Kong’s Hang Seng fell 0.5%, impacted by cautious trading ahead of key Chinese economic releases. Despite strong April industrial output, retail sales disappointed, reflecting persistent consumer weakness. Chinese port operators surged on tariff reprieve optimism. Japan’s Nikkei 225 and South Korea’s KOSPI also edged lower, as investors awaited further economic cues, including Japanese inflation data and the RBA rate decision.

Volatility

Volatility eased further on Friday, with VIX closing down 3.3% at 17.24—its lowest since early April. Ultra-short gauges dropped significantly, with VIX1D down 11.2% to 13.39 and VIX9D declining 9.6% to 14.35, reflecting reduced near-term fear. Despite Moody’s credit downgrade and a busy earnings schedule this week, VIX futures indicate limited immediate hedging activity, suggesting contained market anxiety unless unexpected shocks emerge.

Digital Assets

Bitcoin and Ethereum retreated Monday, with BTC falling 3.8% to $102,438 and ETH dropping 4.8% to $2,378, following recent multi-month highs. Solana saw notable weakness (-7%), while XRP declined 4.5%. Despite the dip, Bitcoin recorded its highest-ever weekly close near $106,500, supported by institutional inflows and macro uncertainties following Moody’s US downgrade. Crypto-related stocks, including Coinbase (+9%), Marathon (+3.4%), Riot (+5.2%), and CIFR (+21.8%), advanced strongly.

Fixed Income

• US treasury yields jumped late Friday and rose further overnight on Moody’s downgrading US debt. It was the last credit rating agency to maintain the top AAA rating on US debt before this downgrade. The sell off in treasuries has taken the 10-year benchmark yield back up to the key 4.50%+ area after trading below 4.40% on Friday at one point. The local high-water mark is at 4.55%. At the longest end of the curve, the 30-year benchmark yield touched 5.0% again, which it has done on multiple occasions this year, but has not closed above that level since late 2023. The two-year benchmark also rose back toward the 4.00% level.
• German 10-year Bund yields closed more than 10 basis points lower than recent highs on Friday at 2.59%, but that was before the news of the Moody’s downgrade late Friday, so the European sovereign bond market bears watching today, though the yield on Japan’s 10-year JGB’s rose less than 2 basis points overnight.

Commodities

• Gold, silver, and platinum—all hard assets with a tight supply outlook—trade higher due to renewed focus and concerns about the US economic outlook and budget deficit, after Moody's downgrade of the US credit rating. The move sent US long-end Treasury yields higher, lowering its haven appeal and exacerbating the cost of funding bloated US debt, while the USD fell.
• Crude's rollercoaster ride to nowhere continues within an established wide range as traders' focus continues to alternate between ample supply and tariff-related demand worries, and the prospect of lower production from high-cost producers, US-Iran talks, and other geopolitical tensions. Hedge funds responded to the 90-day truce by boosting bullish Brent bets by 55% to a five-week high.

Currencies

• The US dollar weakened overnight on the follow-on reaction to the Moody’s downgrade of US treasuries, though trading ranges were unexceptional. USDJPY tried below 145.00 briefly before bouncing back above that level after a Friday close of 145.70. EURUSD rallied to touch 1.1200 overnight after closing a 1.1163 on Friday, but eased back lower by late Asian trading on Monday.
• AUDUSD has been having a hard time straying much above or below the 0.6400 level ahead of the RBA meeting tonight, which is expected to deliver a 25 basis point cut , which would be the second rate cut of the cycle. The guidance will be closely watched for the pace of additional cutting as the July meeting is priced for 25% odds of a rate cut.

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