Vital Statistics:
Stocks are lower this morning after the Moody’s downgraded US sovereign debt. Bonds and MBS are down, although sovereign debt is down globally, with the UK, Germany and Japan all seeing similar increases in yield.
The week ahead will be somewhat data-light with nothing market-moving. We will get new home sales, existing home sales and the index of leading economic indicators along with a lot of Fed-speak. The MBA Secondary Conference will be going on as well.
Moody’s downgraded US sovereign debt, following the other ratings agencies. “This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” the rating agency said in a statement….Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s analysts said in a statement. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”
Consumer confidence fell in May, according to the University of Michigan Consumer Sentiment Survey. Both the current situation and future expectations fell. Tariff uncertainty is weighing heavily on consumers. The survey period for this report ended just before the tariffs were cut dramatically for China. Year-ahead inflation expectations increased from 6.5% to 7.3%.
“While most index components were little changed, current assessments of personal finances sank nearly 10% on the basis of weakening incomes. Tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April; uncertainty over trade policy continues to dominate consumers’ thinking about the economy. Note that interviews for this release were conducted between April 22 and May 13, closing two days after the announcement of a pause on some tariffs on imports from China. Many survey measures showed some signs of improvement following the temporary reduction of China tariffs, but these initial upticks were too small to alter the overall picture – consumers continue to express somber views about the economy. The initial reaction so far echoes the very minor increase in sentiment seen after the April 9 partial pause on tariffs, despite which sentiment continued its downward trend.”
