The Morning Edge: Moody’s Downgrade Triggers Debt Alarm as Washington Debates Trillion-Dollar Bill

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Global Sentiment: Risk-off
Factors:  US Rating Downgrade

TODAY’S WATCHLIST
 - China April Industrial Production data
 - US FOMC Member Williams and Bostic 

THE BIG STORY
Moody’s has downgraded the US sovereign credit rating by one notch to AA1, citing alarm over the ballooning $36 trillion national debt and a persistent lack of fiscal restraint from Washington.

The downgrade follows the Republicans' push for the "Big Beautiful Bill," which includes tax cuts, spending increases, and safety-net reductions that could add $5.2 trillion to the debt by 2034 if extended.

The bill stumbled in Congress on Friday, just as President Trump called for unity behind it. While recent trade optimism has lifted market sentiment, Moody’s warns that neither current proposals nor past administrations have shown a credible path to reversing rising deficits, leaving investors increasingly uneasy about the long-term sustainability of US finances. 

DATA
US consumer sentiment declined sharply in May, with the University of Michigan’s index falling to 50.8, the lowest since June 2022, as inflation expectations soared. One-year inflation outlook surged to 7.3%, the highest since late 1981, reflecting growing anxiety over President Trump’s tariff-driven trade policy and its impact on household budgets. The deterioration in sentiment was broad-based, with confidence slipping even among Republicans, traditionally more supportive of the administration. 

Also, US import prices unexpectedly rose by 0.1% in April, reversing a 0.4% decline in March, as a sharp rise in capital goods costs outweighed falling energy prices, according to the Labor Department. The increase defied economists’ expectations of another 0.4% drop. On a year-on-year basis, import prices edged up 0.1%, highlighting persistent cost pressures even as tariff exclusions are not reflected in the data.

WHAT HAPPENED OVERNIGHT
US stocks indexes extended gains on Friday, rising for a fifth consecutive session, as investors remained upbeat following the US-China tariff truce earlier in the week. Applied Materials fell 5.3% after missing second-quarter revenue expectations, while Charter Communications gained 1.8% on news it would acquire Cox Communications for $21.9 billion. Verizon Communications rose 1.7% after the Federal Communications Commission approved its $20 billion acquisition of Frontier Communications, following the company’s agreement to discontinue its diversity, equity, and inclusion programmes.

US Treasury yields declined on Friday after fresh data showed a weaker-than-expected performance in the housing sector, reinforcing concerns over the economic impact of tariffs and high borrowing costs. Single-family housing starts fell 2.1% in April on a seasonally adjusted basis, as elevated mortgage rates and tariffs on imported construction materials continued to weigh on the market. The softness in housing contributed to a continued decline in yields. The benchmark 10-year Treasury yield eased 1.2 basis points to 4.443%, extending Thursday’s decline.

The US dollar strengthened on Friday, extending its weekly winning streak to a fourth consecutive week, as data signalled a rebound in import prices despite subdued consumer sentiment. Meanwhile, consumer sentiment weakened amid rising concerns over tariffs. The dollar index climbed 0.36% to 101.13, while the euro slipped 0.37% to $1.1146. For the week, the greenback gained around 0.7%.

Brent crude oil prices rose on Friday, marking a second consecutive weekly gain as easing US-China trade tensions buoyed market sentiment. Brent crude settled up 88 cents, or 1.4%, at $65.41 per barrel, while US West Texas Intermediate crude gained 87 cents, also 1.4%, to close at $62.49. However, the upside was capped by expectations of increased supply from Iran and OPEC+, tempering the rally.

Day’s Ledger
Economic Data

• China April Industrial Production data
• Eurozone April CPI data

Corporate Actions

• Jan-Mar earnings: Aaron Industries, Alkali Metals, Bharat Electronics, Binani Industries, Borosil, DLF, DOMS Industries, Ecos (India) Mobility & Hospitality, Eris Lifesciences, Everest Industries, Geekay Wires, Globus Spirits, GMR Power and Urban Infra, Gujarat Gas, HEG, Hindustan Foods, Hindustan Media Ventures, Honda India Power Products, IG Petrochemicals, IRB Infrastructure Developers, JK Paper, Karur Vysya Bank, Kaveri Seed Company, KDDL, Marksans Pharma, Mold-Tek Packaging, Navneet Education, New India Assurance Company, NLC India, Northern Arc Capital, One Mobikwik Systems, Petronet LNG, Pfizer, PI Industries, Power Grid Corporation of India, Quess Corp, Redington, Sun Pharma Advanced Research Company, Zydus Wellness,
• Zydus Wellness to consider stock split

Policy Events

• US FOMC Member Williams speaks
• US FOMC Member Bostic speaks

TICKERS

• DR REDDY'S LABORATORIES informed that USFDA completed GMP inspection at its API Middleburgh facility, New York, from 12–16 May. Issued Form 483 with two observations post-inspection.
• BHARAT ELECTRONICS secured additional orders worth ₹5.72 billion since 7 April.
• KEC INTERNATIONAL bagged new transmission and distribution orders worth ₹11.33 billion in India.
• RPP INFRA PROJECTS received acceptance letter for a ₹1.54 billion project in Jharkhand.
• MAX HEALTHCARE INSTITUTE’s subsidiary Crosslay Remedies acquired 4,000 sq. m land with building for ₹1.20 billion.
• LUMAX AUTO TECHNOLOGIES board approved buying remaining 25% stake in IAC International for ₹2.21 billion.
• SUN PHARMACEUTICAL INDUSTRIES informed that  USFDA approved next-gen BLU-U PDT device using LED panels.
• NBCC (INDIA) sold 446 residential units in Noida’s Aspire Silicon City, Phase IV, via e-auction.
• BAJAJ AUTO subsidiary BAIH BV signed loan agreements worth €566 million.
• PNC INFRATECH informed that arbitration award granted worth ₹4.85 billion with 12% annual interest.
• GLAXOSMITHKLINE PHARMACEUTICALS reported fire incident at a contract manufacturing unit.
• VODAFONE IDEA acquired 26% in Sangli Wind Energy for ₹3.1 million.

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