The big, beautiful bond market

Moody’s was the last of the big-three credit rating agencies to downgraded the US credit rating, having held the US at the top Aaa level since 1919.

The timing couldn’t have been more problematic for US President Donald Trump, who appeared in person before House Republicans in Capitol Hill on Tuesday to have his budget passed. Reports that his efforts were successful preceded a treasury note auction on Wednesday that was met with weaker than expected demand.

30-year treasury yields spiked above 5.1% while 10-year yields moved above 4.6% as the market priced in fiscal worries surrounding the new spending bill that was officially passed by the House on Thursday. Bonds spoke and stocks listened - a dip in prices on Wednesday helped US equities to finish the week -4.2% in the red in EUR terms.

Tariffs returned to the headlines on Friday when Trump recommended a 50% levy on all imports from the EU after saying: “our discussions with them [the EU] are going nowhere” in a social media post. This would represent a sharp uptick from the 20% tariff imposed on the EU on ‘Liberation Day’. Revived trade worries led European stocks to fall, ending the week down -0.6%.

There were PMI releases across several of the major economies on Thursday. The US PMI expanded in May, exceeding expectations that it would contract slightly. The Eurozone fared worse, with the composite PMI figure for May dropping to 49.5, below forecasts of 50.7.

In the UK, manufacturing activity declined while the services PMI rebounded upwards. Meanwhile, UK inflation for April accelerated to 3.5% ahead of the 3.3% consensus estimate, and Japan’s core CPI inflation rate jumped to 3.5%, its highest in over 2 years. 

Equities

Global stocks finished down -3.2% in euro terms and down -1.5% in local terms last week. Year-to-date global markets are down by -5.7% in euro terms and up by 3.3% in local terms. The US market, the largest in the world, finished down -4.2% in euro terms and down -2.6% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.5% last week. The German equivalent finished at 2.6%. The Irish 10-year bond yield finished at 2.9%. The Euro/US Dollar exchange rate finished at 1.14, whilst Euro/GBP finished at 0.84.

Commodities

Oil finished the week at $62 per barrel and is down -21.8% year-to-date in euro terms. Gold finished the week at $3,358 per troy ounce and is up 16.6% year-to-date in euro terms. Copper finished the week at $9,641 per tonne and is up 1.5% year-to-date in euro terms.

The week ahead

Tuesday 27^th May

US consumer confidence for May is reported.

Wednesday 28^th May

German unemployment data for May is released.

Friday 30^th May

US PCE price index for April goes to print.