Dow Jones Industrial Average shrugs off Moody's Treasury downgrade

The Dow Jones rose on Monday, tapping the 42,800 region.
Moody’s downgraded US debt late last week, sparking a brief hesitation in investor sentiment.
Fedspeakers are working double duty ahead of US PMI data later this week.

Joshua Gibson FXStreet

The Dow Jones Industrial Average (DJIA) gained ground to kick off the new trading week, touching 42,800 for the first time in eight weeks as markets continue to push equity markets back into the high end following this year’s tariff-fueled stock rout.

Moody’s ratings agency stripped the United States (US) of its last remaining AAA rating on its Treasuries last Friday, citing burgeoning US debt and government deficits that successive presidential administrations either refuse to, or are incapable of, bringing under control. Ratings agencies began stripping AAA status from US Treasuries in 2013, and it is the first time Moody’s has downgraded the US since 1913.

Investor sentiment wobbled at the headlines, but quickly recovered and shrugged off the hit to US creditworthiness: even with decaying investment quality, there are functionally no alternatives to Treasury-quality assets, especially when considering the sheer size of the US debt market, which towers over any other potential asset.

Still, not all is perfectly rosy in the Treasury markets: 30-year yields broke above 5% on Monday, and 10-year yields traded north of 4.5%. The last time 10-year yields rose this high, this fast, the Trump administration was forced to pivot away from and effectively cancel its “reciprocal tariff” plans in April.

Fed not in a rush to meet markets in the middle on rate cuts

Federal Reserve (Fed) speakers have hit the ground running this week in an attempt to temper market expectations for rate cuts. All Fed policymakers have been gently but firmly reminding investors that the US’s still-existing tariff and trade policies make it nearly impossible to forecast the domestic economy, and adjust policy rates as a result. The Fed is firmly entrenched in wait-and-see mode, no matter how much rate markets price in future rate cuts. Even though rate traders still hold out hope for a fresh rate-cutting cycle to kick off in 2025, when those rate cuts will begin continues to march further into the calendar. According to the CME’s FedWatch Tool, rate markets are now pricing in a first quarter-point rate trim in September, well back from the June expectations that were priced in less than a month ago.

The key economic data release this week will be S&P Global Purchasing Managers Index (PMI) figures for May. According to median market forecasts, both the manufacturing and services components of the PMI report are expected to decline slightly as tariffs take a bite out of business spending activity.

Dow Jones price forecast

The Dow Jones Industrial Average continues to march its way back up the charts. The major equity index has closed higher for four consecutive weeks, and is already on its way to a fifth bullish week after a determined start on Monday. The Dow Jones is pushing even further above the 200-day Exponential Moving Average (EMA) near 41,500, and is up nearly 17% from April’s tariff plunge that sent the DJIA down to 36,600.

Dow Jones daily chart

Economic Indicator

S&P Global Composite PMI

The S&P Global Composite Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging US private-business activity in the manufacturing and services sector. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the private economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for USD.

GBP/USD appears bid near 1.3200

GBP/USD gathers momentum and advances toward the 1.3200 neighbourhood on Thursday. Cable manages to shrug-off initial weakness and regain balance on the back of the fresh selling pressure hurting the Greenback.

EUR/USD pushes harder; focus is back to 1.1400

EUR/USD’s daily recovery now gathers steam, sending spot to the vicinity of the key 1.1400 barrier on Thursday. The pair’s bounce follows some decent loss of momentum in the US Dollar in the wake of the release of US PCE data and the weekly labour market readings.

Gold advances slightly past $4,000

Gold reverses part of its recent weakness on Thursday, managing to reclaim the area just above the $4,000 mark per troy ounce. The precious metal regains traction on the back of renewed selling interest in the Greenback, although expectations of rate hikes by the Fed are likely to keep buyers on the sidelines for now.

Bitcoin tests $60,000 as whales sell off – Aave and Jupiter show resilience

The broader cryptocurrency market remains under intense selling pressure, with Bitcoin back at $60,000 for the third time this year. On-chain data shows selling pressure from large-wallet investors, commonly referred to as whales, while total liquidations hit nearly $1 billion in 24 hours.

Bitcoin nears make-or-break level ahead of US PCE data

Bitcoin recovers slightly, trading at $61,700 after reaching a new yearly low of $59,103 and a 21-month low the previous day. This bearish price action is supported by the ongoing institutional sell-off, which recorded an outflow of over $469 million on Wednesday.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.