• Moody’s lowered the US’s sovereign rating from AAA to Aa1; Outlook Revised to Stable from Negative and warned of rising government debt and a widening budget deficit.
• US Treasury Secretary Bessent said countries will get a letter with a US tariff rate if they are not negotiating in good faith and he thinks that rate would be the April 2nd level.
• The House Budget Committee approved President Trump's tax cut bill to set up a possible vote as soon as this week.
• European bourses lower and US equity futures slip in an initial reaction to the latest Moody’s downgrade; ES -1.2%.
• USD shunned as Moody's downgrade spooks markets, GBP cheers UK-EU "reset" deal.
• Moody start for bonds after the US downgrade, Gilts lag on Brexit updates and into 30yr syndication.
• Downbeat trade across oil contracts but precious metals lifted; spot gold eyes USD 3,250/oz.
• Looking ahead, US Leading Index Change, EU-UK Talks, Speakers including Fed’s Bostic, Williams, Logan & Kashkari. Holiday Closure in Canada.

TRADE/TARIFFS

• US President Trump said he would be willing to travel to China to speak with Chinese President Xi regarding foreign policy and economic issues. It was separately reported that President Trump said Walmart (WMT) should stop trying to blame tariffs as the reason for raising prices throughout the chain, while he added that between Walmart and China, they should “eat the tariffs” and not charge valued customers anything.
• US VP Vance said Europe is an important ally of the US but disagreements on trade, while he hoped the meeting in Rome with European Commission President Von der Leyen would lead to long-term trade negotiations and trade advantages.
• US VP Vance discussed with Canadian PM Carney the shared interests and goals of the US and Canada including fair trade policies and the continued lasting relationship between the two countries.
• US Treasury Secretary Bessent said regarding new tariff rates that countries are coming up with very good proposals with few exceptions and the timing of deals depends on whether countries are negotiating in good faith, while he thinks they will do a lot of regional deals. Furthermore, he said countries will get a letter with a US tariff rate if they are not negotiating in good faith and he thinks that rate would be the April 2nd level, according to interviews with CNN and NBC.
• US-China trade truce and China’s prior defiant stance in negotiating with the US is said to have convinced some countries they need to take a tougher position in their own negotiations with the Trump administration, according to Bloomberg.
• Australian PM Albanese said he is "up for a deal" with Europe on free trade following years of trade discussions, according to Bloomberg.

EUROPEAN TRADE

EQUITIES

• European bourses (STOXX 600 -0.5%) opened lower across the board and have been trading sideways throughout the morning. Pressure which follows on from a mostly negative APAC session, stemming from Moody's downgrading the US.
• European sectors opened mixed but now display a mostly negative picture. Optimised Personal Care tops the pile, joined closely by Insurance and then Healthcare. Real Estate lags given the yield environment.
• US equity futures are entirely in the red, as the region reacts to Moody’s downgrading the US from AAA to AA1; outlook Stable from Negative. The data docket ahead is very light, only Leading Index Change is scheduled. Therefore, more focus will be on a slew of Fed speakers which include; Bostic, Williams, Jefferson, Logan and Kashkari.
• JPMorgan upgrades EM equities to Overweight from Neutral.
• Click for the sessions European pre-market equity newsflow
• Click for the additional news
• Click for a detailed summary

FX

• USD is very much on the backfoot vs. peers after Moody's downgraded the US sovereign rating, whereby the rating agency warning of government debt and a widening budget deficit. These concerns have been heightened by news that the House Budget Committee approved President Trump's tax cut bill to set up a possible vote on the passage of the bill as soon as this week. Concerns over the final price tag of the bill has triggered a "sell US" theme at the start of the week. Data docket today is light, but Fed speak is heavy today with Bostic, Williams, Jefferson, Logan & Kashkari all due on the docket. DXY has slipped below last week's low at 100.27.
• EUR is firmer vs. the USD and at the top of the G10 leaderboard as traders seek a liquid alternative to the USD. Newsflow out of the Eurozone over the weekend has mainly centered over ECB speak with ECB’s Wunsch stating that the ECB may have to cut interest rates below 2% and noted that downside risks to growth and inflation have become bigger. Elsewhere, ECB’s Schnabel said the ECB should remain cautious on interest rate moves and that a steady hand is needed for now. EUR/USD has ventured as high as 1.1273, currently near highs.
• JPY has been a beneficiary of the softer USD and downbeat risk sentiment with USD/JPY back below the 145 mark. Newsflow out of Japan has been on the light side following reporting late last week that Japan is holding out for a better trade deal with the US, which would include a full removal of 25% tariffs.
• GBP is one of the better performers across the majors with sentiment underpinned by news that the EU and UK have agreed an outline of a deal which will strengthen ties between both sides. As part of a post-Brexit reconciliation deal, they will sign a security and defence partnership as the centrepiece of a “reset”. Cable has eclipsed last week's best at 1.3360 with a session peak at 1.3382.
• Antipodeans are both firmer vs. the broadly weaker USD but to a lesser degree than most peers alongside the subdued risk tone. Chinese data was mixed, in which Industrial Production topped forecast, Retail Sales disappointed and House Prices continued to contract Y/Y. Attention now turns to Tuesday's RBA rate decision with the central bank widely-expected to deliver a 25bps rate cut.
• PBoC set USD/CNY mid-point at 7.1916 vs exp. 7.2057 (Prev. 7.1938).
• Click for a detailed summary
• Click for NY OpEx Details

FIXED INCOME

• USTs have started the week on the backfoot as the complex reacts to Moody’s cutting the US by one notch, joining S&P (cut August 2011) and Fitch (cut in 2023, after covid), with an AA1 rating. A cut which sparked on Sunday a sell-US trade. The announcement by Moody’s came amid US House Republicans blocking the passage of the Republican tax/spending bill due to concern that it would lift the short-run deficit. USTs themselves at the bottom of a 109-23 to 110-08 band, slipping from Friday’s 110-10+ close. Ahead, the US session is dominated by Fed speak, featuring Bostic, Williams, Logan and Kashkari.
• Bunds are also lower, with price action following the losses seen in the US. But there has been some updates for the bloc specifically, the main one of course being the EU-UK reset talks which appear to have gone well (see Gilts below for more). Elsewhere, political developments with the EU have been net-positive, but some uncertainties/risk points remain. Bunds just off the low of a 129.79 to 130.41 band, downside that accelerated as Friday’s 130.11 trough was lost. Support next at 129.59 from May 12th.
• Gilts are pressured and lagging peers amid the EU-UK updates, and also with focus on a 30yr syndication. The main development this morning was indications and since confirmation that there was a late-doors breakthrough on EU-UK reset talks, and an update is expected mid-morning once political sign off is attained. A press conference featuring UK PM Starmer and EU Commission President von der Leyen is currently set for 12:30BST. Gilts underperforming and lower by over 80 ticks at worst.
• Click for a detailed summary

COMMODITIES

• Subdued trade across the crude complex amid the broader downbeat sentiment across markets emanating from Moody's downgrading the US' rating, for the first time in over a century, from AAA to Aa1 - which effectively put it in line with the ratings by S&P and Fitch. In geopolitics, focus will be on a looming Trump-Putin call later today. Brent trades in a USD 64.69-65.60/bbl parameter.
• Positive trade across precious metals amid a leg lower in the dollar following the US sovereign rating downgrade by Moody's, which spurred a mild 'sell America' impulse. Spot gold rose from a USD 3,206.72/oz low to test USD 3,250/oz to the upside.
• Little action was seen across base metals amid the overnight release of mixed Chinese data, in which Industrial Production topped forecast but Retail Sales disappointed, while the latest House Prices continued to contract Y/Y albeit at a slightly slower than previous pace. 3M LME copper currently resides in a USD 9,435.25-9,520.10/t range.
• EU will need to spend at least EUR 10bln more than last year to refill its gas reserves ahead of winter, after the first cold season in four years left its reserves heavily depleted, according to FT.
• Estonia’s Foreign Ministry said Russia detained a Liberia-flagged oil tanker after it left an Estonian Baltic Sea port.
• Oman’s Energy and Minerals Ministry signed an agreement with Occidental Petroleum (OXY) to amend and extend the Block 53 exploration and production sharing agreement.
• Click for a detailed summary

NOTABLE DATA RECAP

• UK House Price Rightmove MM (May) 0.6% (Prev. 1.4%); YY (May) 1.2% (Prev. 1.3%)
• EU HICP Final YY (Apr) 2.2% vs. Exp. 2.2% (Prev. 2.2%); HICP Final MM (Apr) 0.6% vs. Exp. 0.6% (Prev. 0.6%)

NOTABLE EUROPEAN HEADLINES

• European Commission cuts EZ GDP growth forecast for 2025 to 0.9% (prev. 1.3% in Nov); sees 2026 growth at 1.4% (prev. 1.6%); risks tilted to the downside; 2025 Inflation seen at 2.1%, 2026 seen at 1.7%. Growth outlook revised significantly downwards amid weaker trade outlook and trade policy uncertainty. EZ growth forecast based on assumption of 10% US tariff on all EU goods, 25% on steel and aluminium on cars, no tariffs on pharma and chips.
• UK and EU Deal: Should work towards association of UK to the EU ERASMUS+ programme; continue efforts to support travel and cultural exchange; work towards a balanced youth experience scheme on terms to be mutually agreed. Should explore UK's possible participation in EU's internal electricity market. Work towards establishing a link between carbon markets.
• "Sky News has been told Brussels has dropped demands to link the duration of the agrifood deal to the one for fish - a key [UK PM] Starmer ask", according to Sky News' Coates.
• UK and the EU are expected to agree on Monday on a major post-Brexit reconciliation in which they will sign a security and defence partnership as the centrepiece of a “reset”, although some sticking points were said to remain with talks ‘going down to the wire‘, according to FT. More recently, Sky's Coates posted "Sky News understands there was a late breakthrough on the deal and that you expect news on it mid morning. Talks went well post midnight last night".
• EU and UK negotiators reportedly reached an outline deal to strengthen ties; deal needs political sign off, according to Bloomberg sources.
• EU capitals have reportedly agreed to launch a EUR 150bln loans-for-arms fund which will be backed by the bloc's joint budget, via FT citing sources; follows political agreement being secured this morning. Formal agreement expected on Wednesday.
• ECB’s Wunsch said the ECB may have to cut interest rates below 2% and noted that downside risks to growth and inflation have become bigger, while he currently sees no case for a half-point cut in the foreseeable future. Furthermore, he said the Euro area may be exposed to a negative economic shock in the short term which may be followed by a positive shock in 2026 and 2027, according to FT.
• ECB’s Schnabel said the ECB should remain cautious on interest rate moves and that a steady hand is needed for now, while she commented it is to be seen what will happen regarding a June cut and noted that declining energy prices and slowing global growth may lower inflation in the short term but could reverse in the medium term.
• Portugal's incumbent centre-right party won the election with around 32% of the votes, while PM Montenegro said after the election win that another minority government is the most likely option.
• Portugal will appeal to the European Commission to pressure France over cross-border electricity links after a blackout last month, according to FT.
• Polish pro-EU candidate Trzaskowski was narrowly ahead in Poland’s first round presidential vote and will enter a run-off with right-wing rival Nawrocki.
• Fitch affirmed Greece at BBB: Outlook Revised to Positive from Stable.

GEOPOLITICS

MIDDLE EAST

• Israeli PM Netanyahu says "Israel will 'take control of all' of Gaza Strip", via AFP.
• Iran's Deputy Foreign Minister says Iran-US nuclear talks will fail if the US insists on zero enrichment, according to NourNews.
• Israeli airstrikes killed at least 100 in Gaza as negotiators sought a ceasefire, while Israel’s military said it began a wide ground operation in northern and southern Gaza.
• Israeli PM Netanyahu’s office announced that Israel will allow the entry of a basic quantity of food into Gaza to prevent a hunger crisis.
• Israeli PM Netanyahu’s office said Gaza talks in Doha now include ending the war or a truce and hostage deal, while it added that the end of the war must include Gaza demilitarisation, Hamas exile and the release of all hostages. However, a senior Israeli official said there was little progress in Gaza talks that include ending the war.
• Hamas confirmed a new round of ceasefire talks with Israel in Doha and said both sides are discussing all issues without preconditions, according to an official cited by Reuters. It was separately reported that a series of Israeli airstrikes last week killed the de facto commander of Hamas in Gaza, Muhammad Sinwar, according to reports by Israeli press on Sunday.
• Yemen’s Houthis claimed to target Israel’s Ben Gurion airport with a ballistic missile, although Israel’s military said it successfully intercepted the missile from Yemen, while Houthis announced on Sunday evening that it planned to target Israeli airports in the coming few hours.
• Iran’s President Pezeshkian questioned whether they should believe US President Trump, who speaks of peace and threatens Iran at the same time, while he added that Tehran will continue nuclear talks with the US but is not afraid of threats.
• Iran’s Supreme Leader Khamenei said US President Trump’s comments during his regional visit are an embarrassment and that the US must and will leave the region, while he also commented that Israel is a dangerous and deadly cancerous tumour which must be uprooted.

RUSSIA-UKRAINE

• US President Trump said he will speak with Russian President Putin on Monday at 10:00EDT/15:00BST about stopping the bloodshed in Ukraine, while he will speak to Ukrainian President Zelensky and NATO members after. However, it was later reported that UK PM Starmer spoke with leaders of the US, Italy, France and Germany regarding the situation in Ukraine and catastrophic costs of the war to both sides, while they also discussed the use of sanctions if Russia failed to engage seriously in a ceasefire and peace talks.
• US President Trump said he thinks that they will make a deal with Russian President Putin and said he will use leverage against Putin if he has to, while he added that they have to meet and thinks they will probably schedule it, according to Fox News.
• US Secretary of State Rubio spoke with Russian Foreign Minister Lavrov and welcomed the prisoner exchange agreement reached, while Rubio emphasised President Trump’s call for an immediate ceasefire and an end to the violence. Furthermore, Lavrov discussed with Rubio further contacts between Russia and the US, while Lavrov noted the positive role of the US in the resumption of Russia-Ukraine talks.
• Russia’s Kremlin spokesperson said preparations are underway for a Putin-Trump conversation, while it stated that a Putin-Zelensky meeting could happen but only if certain agreements are reached.
• Russian negotiators at Istanbul talks demanded that Ukraine withdraw troops from all Ukrainian regions claimed by Moscow before a ceasefire can start, while they also demanded international recognition that five Ukrainian regions are Russian, neutrality for Ukraine, and no reparations, according to a Ukrainian official familiar with the talks.
• Ukrainian President Zelensky met with US VP Vance and Secretary of State Rubio on the sidelines of the Pope’s inauguration.
• Ukraine’s military said Kyiv was under a long-lasting drone attack. It was also reported that Ukrainian military intelligence agency said Russia plans to conduct a ‘training and combat’ launch of an intercontinental ballistic missile late on Sunday to intimidate Ukraine and the West.

OTHER

• Turkish President Erdogan said it is possible to say that US sanctions on the Turkish defence sector have eased somewhat, while he added that NATO allies US and Turkey should not have restrictions in the defence sector.
• Taiwan Coast Guard said it does not rule out China launching political warfare to disrupt public morale ahead of President Lai’s inauguration anniversary on Tuesday.

CRYPTO

• Bitcoin is a little weaker and trades just above the USD 103k mark; Ethereum posts deeper losses, -5% last.

APAC TRADE

• APAC stocks were mostly subdued following the US sovereign rating downgrade by Moody's which spurred a mild 'sell America' impulse, while participants also digested mixed Chinese activity data.
• ASX 200 declined with underperformance in the commodity-related sectors but with the downside stemmed ahead of tomorrow's RBA rate decision in which money markets are pricing around a 99% likelihood of a 25bps cut.
• Nikkei 225 retreated amid currency-related headwinds while the data calendar for Japan is very light to start the week and BoJ Deputy Governor Uchida stuck to the script in which he maintained the rate hike signal should prices improve as forecast.
• Hang Seng and Shanghai Comp were lacklustre amid the glum mood across the Asia-Pac region but with the downside in the mainland limited after mixed Chinese data in which Industrial Production topped forecast but Retail Sales disappointed, while the latest House Prices continued to contract Y/Y albeit at a slightly slower than previous pace.

NOTABLE ASIA-PAC HEADLINES

• Nomura raises China's 2025 GDP forecast to 4.5% (prev. 4.0%).
• South Korean presidential front-runner Lee said ties with Russia and China are also important, while he also stated that South Korea should not go all in on the alliance with the US and there is no need to rush a trade agreement with the US.
• US White House and Congressional officials reportedly scrutinised in recent months Apple’s (AAPL) plan to strike a deal to make Alibaba’s (9988 HK) AI available on iPhones in China.
• China's NDRC cuts retail fuel prices by CNY 230/t for Gasoline, CNY 220/t for Diesel; effective Tuesday 20th May.

DATA RECAP

• Chinese Industrial Output YY (Apr) 6.1% vs. Exp. 5.5% (Prev. 7.7%)
• Chinese Retail Sales YY (Apr) 5.1% vs. Exp. 5.5% (Prev. 5.9%)
• Chinese Unemployment Rate Urban Area (Apr) 5.1% (Prev. 5.2%)
• Chinese Urban Investment (YTD) YY (Apr) 4.0% vs. Exp. 4.2% (Prev. 4.2%)
• Chinese House Prices MM (Apr) 0.0% (Prev. 0.0%); YY (Apr) -4.0% (Prev. -4.5%)