NEW ZEALAND: Q1 GDP Forecast To Print Higher Than RBNZ Expected

The ESM5 Overnight range was 5924.75 - 5977.50, Asia is currently trading around 5935. This morning risk is opening up under pressure as the market continues to digest the downgrade by Moody’s late Friday.

• Bloomberg - “Morgan Stanley predicts the US equities comeback will stall due to decelerating revenue growth from mega cap companies and waning earnings momentum. “ It’s hard to justify the numbers”, said Lisa Shalett. ”
• "Companies issued gloomy outlooks in the first quarter due to Trump’s global trade offensive despite better-than-feared results. Big Tech stocks in particular have gone from safe bet to a question mark."(BBG)
• "Walmart should “eat the tariffs” and stop trying to blame them as the reason for raising its prices, Trump wrote in a Truth Social post. Bessent said he spoke to CEO Doug McMillon and that the retailer will absorb some of the costs."(BBG)
• The initial knee-jerk on the downgrade news has been lower, but with Moody’s really only catching up to S&P and Fitch is this news really that significant ?
• The price action last week showed how underweight investors had been and in the short-term you would expect dips to be supported.
• The SPX has had a huge bounce from its lows on 4800 handle, without any pause and has left a generally bearish and underweight market completely wrong-footed. 

• In the short-term though this move is starting to look a little overdone. Look for demand to materialize once more back towards the 5700 area as momentum funds and corporate buybacks dominate the flow for now.

  Fig 1: SPX Daily Chart

  

  Source: MNI - Market News/Bloomberg

ACGBs (YM -2.0 & XM -3.0) are slightly weaker as US tsy 10-year futures (TYM5) react in early Asia-Pac dealings to late Friday news that Moody's Ratings downgraded the US credit score.

• Cash US tsys are slightly mixed, with a steepening bias, in today’s Asia-Pac session.
• Bloomberg - "Moody's Ratings downgraded the US credit score to Aa1 from Aaa due to an increase in government debt and a higher interest burden."
• "The move follows downgrades by Fitch Ratings and S&P Global Ratings, with Moody's citing a decline in fiscal metrics that can no longer be counterbalanced by the US' economic and financial strengths."
• Cash ACGBs are 1-3bps cheaper with the AU-US 10-year yield differential at +1bp.
• The bills strip is flat to -2.
• The local calendar will be empty until tomorrow’s RBA Policy Decision. A 25bp cut to 3.85% is widely expected.
• RBA-dated OIS pricing is little changed across meetings today. A 25bp rate cut in May is given a 94% probability, with a cumulative 77bps of easing priced by year-end (based on an effective cash rate of 4.09%).
• This week, the AOFM plans to sell A$1200mn of the 4.25% 21 December 2035 bond on Wednesday and A$800mn of the 2.75% 21 November 2028 bond on Friday.

TYM5 is trading 110-05, down 0-05 from its close. 

• The US 2-year yield opens around 3.974%, down 0.03 from its close.
• The US 10-year yield opens around 4.477%, unchanged from its close.
• (Bloomberg) -- The US Treasury has $82 billion of extraordinary measures left, in addition to its cash pile, to help keep paying the government’s bills, the department said, citing data as of May 14.
• Treasury Secretary Scott Bessent told lawmakers last week that the US is likely to exhaust its borrowing authority in August if the federal debt ceiling isn’t raised or suspended by then
• The 10-year Yield looks likely to test the 4.5% resistance area again on the downgrade. A sustained break above this level could see another round of selling targeting the 4.75% area. Support towards 4.35% held Friday night, dips back towards here should see supply emerge once more.
• Data/Events: Atlanta Fed President Raphael Bostic , Dallas Fed President Lorie Logan and Fed Vice Chair Philip Jefferson speak at Amelia Island conference. New York Fed President John Williams speaks at an event organized by the Mortgage Bankers Association.