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The weekend started off with a bang as the US credit rating was downgraded by Moody’s late in the day. That will start things on a soft footing but a few developments afterwards also aren’t promising:

1) Bessent’s reaction to the downgrade

When he campaigned for the job of Treasury Secretary, Scott Bessent repeatedly highlighted the poor US fiscal trajectory as his defining reason for taking the jobs. Something about politics seems to have changed that. In an interview today he said he wouldn’t put much creedence in Moody’s. He also said that GDP growth will outrun the deficit, bringing down debt-to-GDP. That’s a laughable idea with deficits set to run at +7% of GDP.

The point here is that no one in charge seems to care about the deficit and Bessent is now downplaying the problem. Maybe some hawks in Congress stand up but I wouldn’t bet on it.

2) What happened to capitalism?

Bessent also said that Walmart is going to eat some of the tariffs after Trump took a straight-up socialist turn with this post:

This is the kind of thing that would destroy corporate profits. Walmart is one of the all-time great examples of the power of capitalism. It generated $648.1 billion in sales globally last year and earned $15.5 billion. That’s a 2.4% margin. Moreover, some of the lowest-margin items they sell (ex-groceries) are made in China, like electronics.

3) Bessent said Liberation Day tariffs will be reinstated for many countries

Late last week, the FT reported that Japan has cut off negotiations on tariffs until after July elections. So far we have one ‘deal’ with the UK and weeks of rumors about other deals that haven’t come to fruition. Where are the countries that are willing to tolerate 10% tariffs? Lately there is a report that the US and EU have exchanged some negotiating documents but I think it’s a fantasy that the US will get away with a 10% tariff floor and open up more trade without retaliation.

The trade war isn’t over, it’s on a break.

This article was written by Adam Button at www.forexlive.com.

This was out earlier but it’s an important development:

The FT reports that Japan is holding out for a better deal with the US, including a full removal of 25% auto tariffs. It says a deal is now unlikely to be reached before elections due in late July, which is beyond the 90-day delay the US imposed (expiration is July 8).

There had been reports this week that Japanese and South Korean deals would be soon announced, though there is a meeting still planned for next week and the G7 in Canada will be closely watched.

This article was written by Adam Button at www.forexlive.com.

Australian Prime Minister Albanese responded to questions from media, the Australian Financial Review (gated) , on Saturday.

• will attend Pope Leo XIV’s inauguration mass in Rome
• will meet with European Commission President Ursula von der Leyen on the sidelines
• will renew leader-level discussions for an Australia-European free trade deal
• Australia would not strike a deal with the EU “at any price”
• but,
  “We’re up for a deal that’s in Australia’s national interest”
• Albanese pointed to the Australia-UK free trade deal as a template for a good deal

Negotiations for a free trade agreement with Europe stalled in 2023.

This article was written by Eamonn Sheridan at www.forexlive.com.

The UK Times (gated) interview with Prime Minister Starmer. From the report (bolding is mine):

• The prime minister is expected to ­announce broad plans for a youth mobility deal on Monday as part of a wider agreement with the European Union
• The deal will bring Britain into the closest alignment with the EU since Brexit and will cover trade, agriculture, security and defence.
• Starmer said that the deal, to be ­announced at a meeting at Lancaster House in London, would be a “really ­significant moment”. He added that the effects would be “measured in the ­pockets of working people” in the form of better job prospects and higher living standards.

As noted, The Times is gated but the link to the article is above. There is a lot more detail, if you can access it.

There are other reports that are not gated, but since the interview was with The Times they are not as detailed. Link here though:

• (Sky) The government is set to host EU leaders in London on Monday as part of its efforts to “reset” relations post-Brexit.
• (BBC) As well as youth mobility, issues such as fishing rights are also expected to be discussed during Monday’s meeting – the first since Brexit.

Starmer added that:

• “Nobody wants to relitigate the last nine years”

LOL. There are plenty of folks in the UK doing just that.

This article was written by Eamonn Sheridan at www.forexlive.com.

The recent decision by U.S. President Donald Trump to accept a luxurious Boeing 747-8 airplane valued at approximately $400 million from Qatar has ignited significant controversy in the United States, drawing legal, ethical, and political scrutiny. Many are asking: Is it legal for Trump to accept the airplane gift?

Qartar’s Airplane Gift and Its Status

Qatar presented the airplane to President Trump during his recent visit to the Gulf state, prompting questions such as “Why did Qatar gift Trump an airplane?” The luxurious aircraft, intended for use as Air Force One, has already arrived in the United States and is currently grounded at San Antonio International Airport. Preliminary retrofitting work is reportedly underway, preparing the jet for potential official use as Air Force One.

Legal Concerns: Foreign Emoluments Clause and Congressional Approval

At the heart of the controversy is the Foreign Emoluments Clause of the U.S. Constitution, which explicitly prohibits any federal official, including the President, from accepting gifts from foreign states without explicit consent from Congress. Legal analysis suggests that regardless of whether the airplane is intended for personal or government use, accepting such an extravagant gift without congressional approval seems to directly conflict with constitutional requirements. People are specifically searching for “Foreign Emoluments Clause Trump airplane” and asking, “Is Trump violating Constitution by accepting Qatar jet?”

Political and Ethical Opposition

The issue has triggered substantial bipartisan criticism. Democratic legislators have initiated congressional investigations into Trump’s Qatar airplane gift, demanding transparency and legal justification from both the Department of Justice and White House Counsel. Several Republican lawmakers have joined the chorus, voicing concerns over national security risks and the ethical implications, with public and political figures openly discussing “Who opposes Trump airplane gift from Qatar?” and “Bipartisan criticism Trump Qatar airplane.”

Ethics watchdogs and advocacy groups emphasize that allowing the gift sets a troubling precedent, potentially undermining public trust in government institutions and raising severe concerns over potential foreign influence in U.S. politics.

Status of Opposition and Current Actions

Currently, opposition is gaining momentum through congressional investigations led by the House Judiciary Committee. Legal experts anticipate swift legal action and possible lawsuits against Trump’s airplane gift if President Trump attempts to officially utilize the aircraft without obtaining congressional consent. Such actions could include lawsuits filed by congressional representatives or ethics advocacy organizations aimed at securing injunctions against the use of the jet pending comprehensive judicial review.

Expected Next Moves and Predictions: Will courts block Trump from using Qatar airplane?

If President Trump proceeds to officially use the airplane, opponents are expected to immediately seek legal intervention through the courts, prompting questions like, “Will courts block Trump from using Qatar airplane?” Initial measures would likely include filing motions for temporary restraining orders or preliminary injunctions to halt any official use of the plane. This would force the matter into expedited judicial review, ensuring quick clarification on the legality of accepting the gift.

Additionally, congressional leaders will likely call urgent hearings regarding Trump’s Qatar airplane congressional hearings to address constitutional and national security implications, putting further political pressure on the administration to either formally seek congressional approval or reconsider acceptance of the gift.

Estimating the Outcome as President Trump Remains Firm to Accept the Airplane Gift from Qatar

Given the clear wording of the Constitution’s Foreign Emoluments Clause and strong bipartisan concerns, opponents of the airplane’s acceptance appear to have significant leverage. Historically, courts have generally supported strict interpretations of constitutional clauses designed to prevent conflicts of interest and foreign influence. Therefore, it is a well-founded estimation—though not guaranteed—that legal challenges could successfully halt the airplane’s official use unless explicit congressional authorization is obtained.

In conclusion, while President Trump remains firm in his stance, the likelihood of opponents successfully requiring formal congressional approval remains high, reflecting constitutional clarity, bipartisan political alignment, and historical judicial precedent.

This analysis is an estimation based on current available legal opinions, political dynamics, and historical precedents, emphasizing the necessity of formal congressional consent for high-value gifts from foreign entities. It is not a formal legal analysis. Always do your own reseach. Stay tuned with ForexLive.com, evolving to investingLive.com later this year.

This article was written by Itai Levitan at www.forexlive.com.

The US government is in the middle of discussing a generational tax cut and Moody’s just voted.

The ratings agency downgraded the full faith and credit of the USA to Aa1 from Aaa. That means that all three ratings agencies have now removed the US top rating.

The drop comes a year after Moody’s lowered its outlook on the US. That was a sign this could be coming but the usual 18-24 month guideline was spend up so that it would be lobbed at a high stakes time. Moody’s says the new rating is stable but also highlights the obvious problem.

“Successive US administrations and Congress have failed to agree on
measures to reverse the trend of large annual fiscal deficits and
growing interest costs,” Moody’s said.

They highlighted the upcoming budget bill to note that it doesn’t see any meaningful multi-year reductions in mandatory spending under the current proposals. With that, they say the USA’s fiscal performance is likely to deteriorate relative to other highly-rated sovereigns.

“While we recognize the US’ significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics,” Moody’s wrote.

In terms of one of those metrics, they see US dept-to-GDP rising to about 134% of GDP in 2035 compared to 98% last year.

There was some very late moves in the market on this and I’d expect it’s negative for the dollar on Monday and positive for gold.

This article was written by Adam Button at www.forexlive.com.

• UMich May prelim consumer sentiment 50.8 vs 53.4 expected
• US April housing starts 1.361m vs 1.365m expected
• US April import prices +0.1% vs -0.4% expected
• Japan not keen for compromise in US trade talks
• Trump tax bill fails in House panel
• Baker Hughes US oil rig count -1
• Federal Reserve said to plan cuts of 10% of workforce over next several years
• SNB’s Schlegel: Switzerland is not a currency manipulator

Markets:

• WTI crude oil up 88-cents to $62.50
• US 10-year yields down 2.3 bps to 4.43%
• Gold down $46 to $3193
• S&P 500 up 0.6%
• USD leads, CHF lags

The FX market was lacklustre on Friday with no real driving force behind any of the moves. An earlier report about Japan balking at US trade negotiations didn’t get much traction and the market was middling.

It eventually sprang to life after the UMich report, which once again showed a dismal reading on consumer confidence but it was likely the continued surge in inflation expectations that caught the market’s attention. That reversed a drop in yields and pared some of the Fed cut pricing seen in the market.

With that, the US dollar found some decent bids and EUR/USD sank to 1.1131 from 1.1200. It was a broad move in the dollar that included a rise in USD/JPY to 146.05 from 145.45.

As the day wore on, some US dollar sellers returned but the moves were modest.

The bigger conclusion from markets this week is that the trade war has likely peaked, and I’m on board with that thinking. That doesn’t mean it will be easy from here. It was a refreshingly quiet week in the latter half as Trump went to the Middle East and that helped to lift risk assets.

It’s probably too much to ask for more of the same next week.

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

The S&P 500 started off the week on a positive note as US-China tariffs were slashed. The buying never really stopped as the index climbed every day this week.

Friday’s changes:

• S&P 500 +0.7%
• Nasdaq Comp +0.45%
• Russell 2000 +0.9%
• DJIA +0.7%
• S&P TSX Comp +0.3%

On the week:

• S&P 500 +5.1%
• Nasdaq Comp +7.0%
• Russell 2000 +4.5%
• DJIA -0.2%
• S&P TSX Comp +2.4%

This article was written by Adam Button at www.forexlive.com.

The FT reports that the US and EU have begun trade talks after recently exchanging negotiating documents that touch on tariffs, digital trade and investment.

The report says USTR Greer threatened the EU with reapplying 20% tariffs.

This is going to be a tough one as many European leaders are saying they will not accept a 10% floor or anything along the lines of what the UK agreed to.

There was talk about deals with Japan and South Korea this week but the former appears to have walked away from the table, according to a report today.

The EU trade commisssioner spoke with Greer on Thursday and said he hoped to meet net month in Paris.

This article was written by Adam Button at www.forexlive.com.

Monday (May 19)
Markets closed for Victoria Day – nothing scheduled.

Tuesday (May 20) – CPI day

• GoC bill auctions: 3-mth C$17.6 bln, 6-mth C$6.2 bln, 1-yr C$6.2 bln.

• 08:30 ET – April CPI (consensus)

  • Headline m/m -0.2 % (prior +0.3 %)

  • Headline y/y 1.6 % (prior 2.3 %)

  • Core Median y/y 2.9 % (prior 2.9 %)

  • Core Trim y/y 2.8 % (prior 2.8 %)

I think the Bank of Canada will be more-focused on the core measures here but the headline will certainly give them cover to cut. Right now the market is pricing in a 64% chance rates are lowered by 25 bps.

Wednesday (May 21)

• GoC auction: C$3 bln 30-yr Canadas reopening.

Thursday (May 22)

• 08:30 ET – April producer prices

  • Industrial product prices m/m (prior +0.5 %)

  • Raw materials prices m/m (prior -1.0 %)

• 15:15 ET – BoC Deputy Gov. Toni Gravelle – text & audience Q&A could shift June odds.

Friday (May 23) – Retail wrap-up

• 08:30 ET – March retail sales (consensus)

  • Headline m/m -0.3 % (prior -0.4 %)

  • Ex-auto m/m – no consensus yet (prior +0.5 %)

USD/CAD looks to be wrapping up the week just below 1.40.

This article was written by Adam Button at www.forexlive.com.

The big week for stock markets on the US-China climb-down is continuing late on Friday. The S&P 500 has edged to a fresh session high up 33 points, or 0.6%.

Trading has been lighter late in the week but the momentum trade has continued to work.

Technically, there isn’t much (anything?) standing in the way of a return to the February highs. The AI trade is working again as well.

This article was written by Adam Button at www.forexlive.com.

It’s a light week on the economic calendar with the S&P PMIs as the only real market movers. I expect more ‘wait-and-see’ from the Fed speakers.

Aside from what’s listed here, we will be waiting for the US to strike some trade deals and House Republicans are aiming to pass Trump’s budget. Note that the following Monday is a holiday so next Friday afternoon should be quiet.

Monday (May 19)

• Fed-fest:

  • 08:30 ET Bostic (voter)

  • 08:45 ET Jefferson + Williams (vice-chair, voter)

  • 13:15 ET Logan (Dallas, non-voter)

  • 13:30 ET Kashkari (Minneapolis, non-voter)

Tuesday (May 20)

• 08:30 ET – Philadelphia Fed non-manufacturing (May) – no consensus (prior -42.7).

• More Fedspeak:

  • 09:00 ET Bostic & Barkin (both voters)

  • 09:30 ET Collins (Boston)

  • 13:00 ET Musalem (St Louis)

  • 19:00 ET Hammack + Daly (both voters)

Wednesday (May 21)

• Treasury: $16 bn 20-yr auction.

• Fed line-up: 09:15 ET Barkin + Bowman (voter), 14:00 ET Williams.

Thursday (May 22) – the data heavy day

• 08:30 ET – Initial jobless claims: consensus 226 k (prior 229 k).

• 08:30 ET – Chicago Fed national activity index (Apr) – no consensus (prior -0.0).

• 09:45 ET – S&P flash PMIs (May)

  • Services 50.6 vs 50.8 prior

  • Manufacturing 49.8 vs 50.2 prior

  • Composite – no consensus.

• 10:00 ET – Existing-home sales (Apr)

  • m/m +3.2 % (prior -5.9 %)

  • No street call on the SAAR headline yet.

• Treasury: $18 bn 10-yr TIPS reopening.

Friday (May 23)

• 10:00 ET – New-home sales (Apr)

  • SAAR 705 k (prior 724 k)

  • m/m +2.6 % after -4.0 %.

This article was written by Adam Button at www.forexlive.com.