Weekly economic commentary: Moody's downgrade spotlights fiscal reality

Wells Fargo Research Team Wells Fargo

Summary

United States: The old versus the new

The challenges facing the housing market have yet to meaningfully abate. Our expectation for mortgage rates to soften slightly alongside Federal Reserve rate cuts could help improve affordability, but the prospects for such a move in the near term have dimmed.
Next week: Durable Goods (Tue.), Consumer Confidence (Tue.), Personal Income and Spending (Fri.)

International: International data show mixed growth and lingering inflation

This week brought a range of data and events from foreign economies. On the policy front, the Reserve Bank of Australia delivered a widely expected rate cut. Sentiment surveys from the Eurozone and the United Kingdom underwhelmed, providing further evidence of an uncertain outlook. On the price front, the U.K.'s and Japan’s overall inflation increased, while Canadian inflation eased on the back of the carbon tax removal. In China, industrial production and retail sales figures were mixed.
Next week: Brazil GDP (Fri.), Canada GDP (Fri.), China PMIs (Sat.)

Interest rate watch: Moody's downgrade spotlights fiscal reality

Late in the afternoon on Friday, May 16, Moody's downgraded the sovereign credit rating of the United States to AA+, one notch below the top rating of AAA. This decision by Moody's, in conjunction with the House-passed budget reconciliation bill this week, has brought U.S. fiscal policy back into the spotlight for financial markets.

Topic of the week: Will tariffs spur a resurgence of US Manufacturing Jobs?

The goals of the administration's trade regime changes are varied, but a resurgence of American manufacturing jobs is certainly a priority. Could higher trade barriers spur a rebound in U.S. manufacturing employment?

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Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.