Source : THE AGE NEWS
By Michael Mackenzie
The Australian sharemarket is expected to open lower on Monday, as global investors react to Moody’s stripping the US of its top-notch credit rating, reflecting deepening concern that ballooning debt and deficits will damage America’s standing as the preeminent destination for global capital.
Moody’s lowered the US credit score to Aa1 from Aaa on Friday, joining Fitch Ratings and S&P Global Ratings in grading the world’s biggest economy below the top, triple-A position.
Wall Street posted another winning session, but Moody’s announced lowered the US credit score to Aa1 from Aaa an hour after the session closed on Friday in New York.Credit: AP
The downgrade, which occurred after the US stockmarket had closed, could weigh on sentiment, and it caused US Treasury yields to move higher.
ASX 200 futures were pointing to a decline of 0.1 per cent on Monday, at the start of a week when the key event is an expected cut in interest rates from the Reserve Bank. The Australian dollar was fetching 64.11 US cents at 5.20am AEST.
The one-notch cut from Moody’s comes more than a year after Moody’s changed its outlook on the US rating to negative. The credit assessor now has a stable outlook.
“While we recognise the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” Moody’s wrote in a statement.
The White House on Friday cast the move as a political decision. Steven Cheung, a spokesman for President Donald Trump, singled out Mark Zandi, an economist for Moody’s Analytics, in a post on X, accusing him of being a long-time critic of the administration’s policies.
“Nobody takes his ‘analysis’ seriously. He has been proven wrong time and time again,” Cheung said. Moody’s Ratings is a separate group from Moody’s Analytics. Zandi did not immediately reply to a request for comment on Friday evening.
Before the Moody’s downgrade, equities had climbed in regular hours Friday as the Financial Times reported the US and the European Union broke an impasse to enable tariff talks, fuelling the risk-on tone that had been sparked by the recent cooling in trade tensions with China.
Traders were able to look past data showing US consumer sentiment unexpectedly fell while inflation expectations hit multi-decade highs.
The S&P 500 rose 0.7 per cent for a fifth straight gain and closed out its third winning week in the last four. It’s rallied back within 3 per cent of its record set in February after briefly dropping roughly 20 per cent below last month, thanks to building hopes that President Donald Trump will lower his tariffs against other countries after reaching trade deals with them.
The Dow Jones added 331 points, or 0.8 per cent, and the Nasdaq composite climbed 0.5 per cent.
Trump’s trade war had sent financial markets reeling worldwide because of twin dangers. On one hand, tariffs could slow the economy and drive it into a recession. On the other, tariffs could push inflation higher.
This week featured some encouraging news on each of those fronts. The United States and China announced a 90-day stand-down in most of their punishing tariffs against each other, while a couple of reports on inflation in the United States came in better than economists expected.
It was “a week to remember,” according to economists at Bank of America led by Claudio Irigoyen and Antonio Gabriel. But they also said they’re not expecting a significant drop in volatility, and they’re not changing big-picture forecasts.
“There is still huge uncertainty regarding the impact of tariffs on economic activity and inflation,” they said in a BofA Global Research report.
That uncertainty has been hitting US households and businesses, raising worries that they may freeze their spending and long-term plans in response, which would hurt the economy. The latest reading in a survey of US consumers by the University of Michigan showed sentiment soured again in May, though the pace of decline wasn’t as bad as in prior months.
On Wall Street, Charter Communications rose 1.8 per cent after it said it agreed to merge with Cox Communications in a deal that would combine two of the country’s largest cable companies. The resulting company will change its name to Cox Communications and keep Charter’s headquarters in Stamford, Connecticut.
CoreWeave jumped 22.1 per cent after Nvidia disclosed that it had increased its ownership stake in the company, whose cloud platform helps customers running artificial-intelligence workloads. Nvidia now owns 7 per cent of CoreWeave, up from its nearly 6 per cent stake before CoreWeave’s initial public offering of stock in March.
Novo Nordisk’s stock that trades in the United States fell 2.7 per cent after the Danish company behind the Wegovy drug for weight loss said that Lars Fruergaard Jørgensen will step down as CEO and that the board is looking for his successor. The company cited “recent market challenges” and how the stock has been performing recently.
Bloomberg, AP
The Market Recap newsletter is a wrap of the day’s trading. Get it each weekday afternoon.
