US stocks finished mixed after clawing back the initial losses from the US sovereign rating downgrade - Newsquawk Asia-Pac Market Open

• US stocks saw two-way price action and ultimately closed little changed, albeit with underperformance in the small-cap Russell 2000 index. The session began on a sombre note with downside in US stocks, bonds and the dollar in the wake of Moody's downgrading the US credit rating which sparked selling in Asia and European sessions, although the downside had largely rebounded throughout US trade which saw equities close mixed, while attention was also on geopolitical headlines following the Trump-Putin phone call which was said to have gone very well.
• USD was pressured in the aftermath of Moody's downgrading the US sovereign rating which saw dollar assets heavily sold in early trade, while there were a slew of comments from several Fed speakers but had little sway on price action with Fed's Jefferson, Williams and Kashkari all noting uncertainty related to tariffs. Furthermore, Bostic stated the number of rate cuts this year depends on how things turn out and the details of the tariffs will matter, while he is leaning much more towards only one cut this year because it will take time to understand tariffs.
• Looking ahead, highlights include Malaysian Trade Data, PBoC Loan Prime Rates, RBA Rate Decision & Press Conference, Supply from Japan.

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LOOKING AHEAD

• Highlights include Malaysian Trade Data, PBoC Loan Prime Rates, RBA Rate Decision & Press Conference, Supply from Japan.
• Click for the Newsquawk Week Ahead.

US TRADE

• US stocks saw two-way price action and ultimately closed little changed, albeit with underperformance in the small-cap Russell 2000 index. The session began on a sombre note with downside in US stocks, bonds and the dollar in the wake of Moody's downgrading the US credit rating which sparked selling in Asia and European sessions, although the downside had largely rebounded throughout US trade which saw equities close mixed, while attention was also on geopolitical headlines following the Trump-Putin phone call which was said to have gone very well.
• SPX +0.09% at 5,964, NDX +0.09% at 21,447, DJI +0.32% at 42,792, RUT -0.42% at 2,104.
• Click here for a detailed summary.

TARIFFS/TRADE

• US-Japan trade agreement framework is reportedly being delayed in part over negotiations over so-called burden sharing, or how much money Japan has to kick in to support the US military in Japan, according to FBN's Gasparino.
• US-EU trade discussions are said to be complicated by an internal EU disagreement over how to approach any deal with the US, meaning it appears to have a long way to go before culmination, according to FBN's Gasparino citing sources.
• US Treasury does not anticipate any trade deal announcements at the G7 Finance Meeting in Canada this week, according to a source briefed on US preparations cited by Reuters.
• China issued a statement on the US adjusting chip export controls in which it stated the US undermines consensus reached in Geneva talks, while it asks the US to correct wrongdoings and it vowed to take measures if the US insists on going its own way, according to Bloomberg.
• China's Foreign Minister Wang hopes to resolve the anti-subsidy case surrounding Chinese EVs with the EU as soon as possible, while he urged Germany to avoid undermining bilateral cooperation in the name of 'de-risking' and stated that China and Germany should jointly oppose unilateralism and protectionism, according to Xinhua.

NOTABLE HEADLINES

• Fed’s Jefferson (voter) said the impact of tariffs on the Fed's mandate is "top of mind" and risks to the mandate depend on the policy choices by the administration, which are yet to be made, while he noted risks to both jobs and inflation. Jefferson added that given the uncertainty, it is appropriate to wait and see on policy decisions, as well as noted that the US could face a one-time price increase from tariffs and need to ensure this is not sustained.
• Fed's Williams (voter) said recent economic data has been very good and the labour market is pretty much in balance but noted Q1 growth was unusual on trade issues and trade is a particular point of uncertainty. Williams said monetary policy is in a good place and the Fed can take its time on monetary policy decisions, as well as noted that Fed rate policy is well positioned and is 'slightly restrictive'. Furthermore, Williams commented that the uncertainty has led the Fed to keep interest rates steady so far this year and the path forward might not become clearer for months, while he noted it won’t be in June or July that they are going to understand what's happening and it is going to be a process of collecting data, getting a better picture, and watching those things develop.
• Fed's Kashkari (2026 voter) said coming into this year, economic conditions were good and said there is big uncertainty in the economy, while he does not know when the tariff landscape will settle out. Kashkari added that businesses are holding off on investment amid uncertainty and stated it is 'wait-and-see' until the Fed has more information.
• Fed's Bostic (2027 voter) said the Moody's downgrade will cut across economics and financial markets, while the downgrade will have implications for the cost of capital and could ripple through the economy. Bostic said have to wait between 3-6 months to see how things settle, while the number of rate cuts this year depends on how things turn out, and the details of the tariffs will matter. Furthermore, he is leaning much more towards only one cut this year because it will take time to understand tariffs.
• White House said regarding the Moody's US downgrade that the world has confidence in the US economy and that US President Trump disagrees with the Moody's assessment.

DATA RECAP

• US Leading Index Change MM (Apr) -1.0% vs. Exp. -0.9% (Prev. -0.7%, Rev. -0.8%)

FX

• USD was pressured in the aftermath of Moody's downgrading the US sovereign rating which saw dollar assets heavily sold in early trade, while there were a slew of comments from several Fed speakers but had little sway on price action with Fed's Jefferson, Williams and Kashkari all noting uncertainty related to tariffs. Furthermore, Bostic stated the number of rate cuts this year depends on how things turn out and the details of the tariffs will matter, while he is leaning much more towards only one cut this year because it will take time to understand tariffs.
• EUR benefited from the selling in the dollar but is off today's best levels after stalling on approach towards the 1.1300 handle, while ECB's Muller stated cannot rule out further interest rate cuts and need clear reasons to cut significantly more.
• GBP strengthened and briefly reclaimed the 1.3400 status amid the softer buck and amid the UK-EU reset deal.
• JPY remained firm with USD/JPY languishing beneath the 145.00 handle owing to the recent US rating downgrade.
• SNB's Chairman Schlegel said the SNB tolerates a negative inflation rate in the short term, while he added that Swiss 2025 growth will be lower than expected and uncertainty is currently very high. Furthermore, he said the Swiss Franc is often sought as a safe haven in times of uncertainty and commented that negative interest rates cannot be ruled out.

FIXED INCOME

• T-notes were pressured in early trade following the Moody's US credit rating downgrade, but settled well off today's worst levels after gradually recovering throughout the US session.

COMMODITIES

• Oil prices were indecisive and finished relatively flat as markets digested the US downgrade and the Trump/Putin phone call.
• EU Commissioner for Trade Dombrovskis said the EU is to propose to G7 Finance Ministers this week to lower the price cap on Russian Seaborne oil and is likely to propose USD 50/bbl as a new level of the G7 price cap for Russian Seaborne oil.
• Russian Deputy PM Novak said China has proposed increasing oil supplies from Russia by 2.5mln tonnes per year via Kazakhstan, according to Ifx.

GEOPOLITICAL

MIDDLE EAST

• UK-France-Canada leaders in a joint statement said they will take "concrete actions" if Israel does not cease its renewed military offensive in Gaza and lift aid restrictions, while they oppose expanded settlements in the West Bank and could take further action, including targeted sanctions.
• Iranian Foreign Ministry spokesman said no decision has yet been taken on the next round of negotiations on the Iranian nuclear programme, according to Sky News Arabia.

RUSSIA-UKRAINE

• US President Trump posted on Truth that he had just completed a two-hour call with Russian President Putin which he believes went very well, while Russia and Ukraine are to immediately begin negotiations on a ceasefire and for an end to the war. Trump said the conditions for that will be negotiated between the two parties, while he added the tone and spirit of the conversation were excellent and that Russia wants to do large-scale trade with the US when this catastrophic “bloodbath” is over, which Trump agrees to.
• Russian President Putin said the call was very informative and helpful, while US President Trump said Russia favours a peaceful resolution of the Ukraine crisis, according to RIA. Furthermore, it was reported that Russia is ready to work with Kyiv on a memorandum on future peace talks and a ceasefire with Ukraine is possible once agreements are reached, while Putin said they are generally on the right track and that Russia and Ukraine must find compromises that suit both sides.
• Ukrainian President Zelensky noted he had two calls with US President Trump in different formats on Monday in which the first call was one-on-one and second call included leaders of France, Finland, Germany, Italy and EU. Zelensky said the second conversation was long and different in character, while they are considering a meeting of all parties, including Ukraine, Russia, US, EU countries and Britain at the highest level. Furthermore, he hopes the meeting will happen as soon as possible and said Ukraine will not withdraw troops from parts of its own territory or give in to ultimatums from Russia.

ASIA-PAC

NOTABLE HEADLINES

• Chinese state banks will cut deposit rate on Tuesday, according to Reuters sources.

EU/UK

NOTABLE HEADLINES

• UK PM Starmer said regarding a deal with the EU that it marks a new era in their relationship and the deal is a win-win, while he added it gives them unprecedented access to the EU market. It was also reported that the UK government released further details of the EU reset deal and noted that discussion on details of each commitment will continue, while the UK and the EU also agreed to a security and defence partnership.
• BoE's Dhingra said her vote for a 50bps rate cut was partly to make a statement on the direction of the economy, and they might see some cost pass through from US tariffs but argues that number would be quite small. Dhingra said would not rule out a scenario where global trade breaks up and the UK suffers inflation, but does not think that's where they are headed.
• ECB's Muller said he cannot rule out further interest rate cuts and needs clear reasons to cut significantly more, while he added it is not obvious that they must significantly lower rates.
• European Commission cut its EZ GDP growth forecast for 2025 to 0.9% (prev. 1.3% in Nov) and lowered its 2026 growth forecast to 1.4% (prev. 1.6%), while it stated that risks are tilted to the downside and sees inflation at 2.1% in 2025 and at 1.7% in 2026.