Reuters Morning Report - May 19

"Reuters Morning Report" -- May 19 A PDF of important global economic data and event forecasts for the week: Simplified: https://tmsnrt.rs/43h8ng9 Traditional: https://tmsnrt.rs/3SG2HaE The following are major news and market summaries from 5:00 PM on May 16 to 7:00 AM on May 19: -- The U.S. has its rating downgraded by Moody's, completely bidding farewell to the top AAA credit rating club. Moody's downgraded the U.S. sovereign credit rating from "Aaa" to "Aa1" on Friday, citing concerns over the sustainability of U.S. debt, becoming the last of the three major credit rating agencies to remove the U.S. from the top AAA rating. Moody's stated, "Previous U.S. governments and Congress have failed to reach consensus on measures to reverse the trend of annual massive fiscal deficits and rising interest costs." Moody's also changed the outlook for the U.S. rating from "negative" to "stable." nL6S3RP002 -- U.S. consumer confidence in May falls to a three-year low, with one-year inflation expectations soaring to the highest since 1981. U.S. consumer confidence further deteriorated in May, with one-year inflation expectations soaring to the highest level since the end of 1981, amid growing concerns over President Trump's trade policies. The University of Michigan Consumer Confidence Index fell from a final value of 52.2 in April to 50.8 this month, the lowest level since June 2022. Economists surveyed by Reuters had previously predicted the index would rise to 53.4. Consumers' 12-month inflation expectations surged from 6.5% in April to 7.3%, the highest level since November 1981. The U.S. Bureau of Labor Statistics reported that import prices rose 0.6% in April, with overall import prices excluding tariffs rising 0.1% after a 0.4% decline in March. Economists had originally expected import prices to decline by 0.4%. Another report from the Bureau showed that the number of single-family housing starts, which account for the majority of residential construction, fell by 2.1% in April, with an annualized rate of 927,000 units, the lowest level in nine months. Future single-family housing permits fell by 5.1% to 922,000 units, indicating that this weakness may continue. nL6S3RO0R3 -- China data observation: High tariffs impact April industrial year-on-year growth rate expected to drop to 5.5%, investment stable, consumption up 5.5%. The ultra-high tariffs imposed by the U.S. starting in April have put temporary pressure on the Chinese economy. A Reuters survey of 24 institutions shows that the year-on-year growth rate of industrial value added in China for April is expected to fall to 5.5%, the lowest since November last year. In terms of consumption, driven by the trade-in policy and increased travel during the holidays, the total retail sales of consumer goods in April are expected to grow by 5.5% year-on-year, down from 5.9% last month, but still at a high level. Investment is expected to remain stable, with the year-on-year growth rate of fixed asset investment (excluding rural households) from January to April expected to remain at 4.2%. nL4S3RK07P -- The direct talks between Russia and Ukraine failed to reach a ceasefire agreement, and Ukraine calls on allies to continue pressuring Russia. In the first direct talks between Kyiv and Moscow in over three years, no ceasefire agreement was reached, with a Ukrainian source describing Russia's proposed conditions as "unrealistic." Following this, Ukraine secured support from Western allies on Friday. Russia expressed satisfaction with the talks and indicated a willingness to continue engagement. After the talks, Ukrainian President Zelensky immediately spoke with Trump and the leaders of France, Germany, and Poland to mobilize allies for harsher sanctions against Russia. nL6S3RO0RI \* U.S. President Trump stated that he will speak separately with Russian President Putin and Ukrainian President Zelensky on Monday. nL6S3RP043 -- U.S. Treasury Secretary Mnuchin: Tariffs on countries lacking "good faith" in negotiations will return to Liberation Day levels. U.S. Treasury Secretary Mnuchin stated in a television interview on Sunday that countries lacking "good faith" in trade negotiations will be subject to tariffs at the rates announced by President Trump on April 2. Mnuchin did not specify what constitutes "good faith" negotiations or when the "Liberation Day" equivalent tariffs would be reinstated for certain countries. He mentioned that the Trump administration is focusing on 18 key trading partners, and the timing of any agreements will depend on whether countries negotiate in good faith, with notifications sent to those lacking good faith. nL6S3RQ05D -- Trump states U.S. officials will send letters to countries in a few weeks, outlining conditions for trade relations. U.S. President Trump indicated that within the next two to three weeks, U.S. officials will send letters to countries informing them of "the costs they need to pay to do business in the U.S." Trump did not elaborate on what this statement means and mentioned that countries could raise objections, as U.S. officials cannot meet individually with all "150 countries wishing to reach agreements." nL6S3RO0NU -- The Chinese Ministry of Commerce announced on Sunday the final ruling on the anti-dumping investigation of imported urea-formaldehyde copolymer from the U.S., EU, Taiwan, and Japan, concluding that dumping exists and imposing anti-dumping duties ranging from 3.8% to 74.9% on related companies, with the highest rates applied to U.S. companies. nL4S3RQ00L -- Trump states Iran needs to act quickly on nuclear proposals, Iran denies receiving U.S. proposals. Trump stated that Iran has received U.S. proposals regarding its nuclear program and knows it needs to act swiftly to resolve this decades-long dispute. However, Iranian Foreign Minister Amir-Abdollahian posted on social media platform X that Tehran has not received any U.S. proposals and that Iran will not abandon its rights to (uranium) enrichment for peaceful purposes. nL6S3RO0Q6 -- European Commission President von der Leyen: Preparing new sanctions to increase pressure on Putin. European Commission President von der Leyen stated that the EU is formulating a new package of sanctions against Russia to increase pressure on President Putin. "We will increase pressure," she said, "We are developing a new package of sanctions, which includes sanctions against Nord Stream 1 and Nord Stream 2, adding more vessels to the shadow fleet, lowering the oil price cap, and ultimately imposing more sanctions on the Russian financial sector." -- Foreign investment in U.S. Treasury bonds surpassed $9 trillion in March, reaching a record high, while China's holdings dropped to become the third-largest holder. Data released by the U.S. Treasury Department shows that foreign holdings of U.S. government bonds surged to a historic high in March, marking the third consecutive month of increase, with strong demand for U.S. bonds remaining even months after President Trump took office. The data also indicates that the UK has surpassed China to become the second-largest holder of U.S. bonds. China's holdings of U.S. bonds fell from $784.3 billion last month to $765.4 billion in March. -- Belgian central bank governor and European Central Bank board member Villeroy stated in an interview with the Financial Times on Saturday that the European Central Bank may need to lower interest rates to "slightly below" 2% due to the downward risks to inflation and economic growth posed by global trade tensions. -- Swiss National Bank cannot rule out the possibility of negative interest rates -- President Jordan Swiss National Bank President Jordan stated that he cannot rule out the possibility of needing negative interest rates in the future, but he reiterated that the Swiss National Bank does not favor negative rates. Jordan also pointed out that the Swiss National Bank would only intervene in the market to curb overvaluation when the Swiss franc is overvalued and threatens price stability, not to gain a competitive advantage for domestic exporters, reiterating that Switzerland is not a currency manipulator. -- Nvidia CEO Jensen Huang stated on Saturday that after the U.S. government restricted the sale of its Hopper H20 chips in China, Nvidia is assessing how to respond to the Chinese market but will not launch other versions of the Hopper chip. -- Nvidia seeks to establish a research and development center in Shanghai -- sources Three sources stated that Nvidia is scouting locations in Shanghai for a research and development center, reflecting the strategic importance of the Chinese market, as U.S. restrictions on advanced chip exports have impacted sales in China. One source mentioned that Nvidia began looking in early 2025, primarily evaluating locations in the Minhang and Xuhui districts of Shanghai. Two sources said that the Shanghai government has expressed willingness to provide incentives, including tax reductions, for the Nvidia project. One source added that the Shanghai government is also considering providing a large amount of land for Nvidia's R&D center in China. -- The Federal Reserve plans to cut 10% of its workforce over the next few years, aligning with Trump's efforts to streamline the government. According to a memo sent by Federal Reserve Chairman Jerome Powell to employees, the Federal Reserve plans to reduce its workforce by about 10% over the next few years, in line with President Trump's broader efforts to streamline the federal government. A copy of the internal memo seen by Reuters shows that Powell stated in the memo that he has instructed Federal Reserve leadership to seek "gradual" ways to reduce operational scale, aiming to cut the total number of Federal Reserve employees by about 10% in the "coming years." Currently, the Federal Reserve has approximately 24,000 employees nationwide. -- Business leaders from the G7 call for the elimination of trade barriers ahead of the G7 summit A communiqué shows that G7 business leaders are urging member countries to lift trade restrictions and invest in critical minerals to reduce supply chain vulnerabilities. Business and industry organizations from the G7 gathered in Ottawa to make recommendations to host country Canada ahead of next month's G7 leaders' summit. The joint statement presented five key areas to G7 leaders, including the supply and investment of critical minerals and materials, where China holds a dominant position. The statement also called for the dismantling of Trump's trade barriers. nL6S3RO0QV --Exclusive: At least five Chinese companies plan to go public in Singapore in the next 12 to 18 months According to four sources, at least five companies from mainland China or Hong Kong are planning to conduct initial public offerings (IPOs), dual listings, or share placements on the Singapore Exchange (SGX) in the next 12 to 18 months; these companies include a Chinese energy company, a Chinese healthcare group, and a biotechnology group based in Shanghai. However, they declined to disclose the names of the companies as the plans have not been finalized. nL6S3RP042 --Due to the impact of the U.S. trade war, China has become the largest buyer of Canadian TMX crude oil Vessel tracking data shows that as the U.S. trade war has altered the flow of crude oil exports from Canada following the operational launch of the Trans Mountain Expansion (TMX) pipeline, China has become the largest buyer of Canadian oil transported through this pipeline. Data indicates that since the TMX expansion project fully commenced operations in June last year, Canada has been exporting an average of about 207,000 barrels of crude oil per day to China. This is a significant increase compared to the average export volume of about 7,000 barrels per day over the previous decade before 2023. During the same period, the U.S. imported about 173,000 barrels of oil per day from the pipeline. nL6S3RO05R --The New York Times reports that White House and congressional officials have been closely reviewing Apple's decision to choose Alibaba to develop artificial intelligence (AI) for iPhones in China. The report cites three informed sources who say that U.S. authorities are concerned that this deal will help a Chinese company enhance its AI capabilities, expand the coverage of Chinese chatbots under scrutiny, and deepen Apple's exposure to risks related to Chinese laws on scrutiny and data sharing. nL6S3RP010 --China's Banking and Insurance Regulatory Commission: In the first quarter, the non-performing loan ratio of commercial banks slightly increased, and the net interest margin decreased by 9 basis points compared to the end of the previous quarter Data released by China's Banking and Insurance Regulatory Commission shows that in the first quarter of 2025, commercial banks achieved a cumulative net profit of 656.8 billion yuan; the balance of non-performing loans was 3.4 trillion yuan, an increase of 157.4 billion yuan compared to the end of the previous quarter; the non-performing loan ratio of commercial banks was 1.51%, an increase of 0.01 percentage points compared to the end of the previous quarter. Additionally, the net interest margin of commercial banks in the first quarter was 1.43%, a decrease of 9 basis points compared to the end of the fourth quarter of last year. nL4S3RO0V3 --Hong Kong Hang Seng Index Company announced the results of its quarterly review, showing that the Hang Seng Index will include Midea Group and ZTO Express, increasing the number of constituent stocks to 85. In addition, the Hang Seng Tech Index will include BYD and exclude Yueda Group; the Hang Seng Composite Index will include Bruker, Gu Ming, and Mixue Ice City. All changes will take effect after the market closes on June 6 and will be effective from June 9. nL4S3RO0R7 -- The Beijing Municipal Transportation Commission stated that in order to better meet the vehicle needs of car-free families, Beijing will issue an additional 20,000 new energy small passenger car indicators on top of the previously directed issuance of 40,000 new energy small passenger car indicators. The difficulty of winning a license plate in Beijing's lottery is extremely high, with the winning rate for ordinary small passenger car indicators dropping to nearly "one in a thousand." Although the new energy indicators are relatively lenient, the waiting period can still take several years or even decades. nL4S3RO0R9 -- Chinese battery manufacturer CATL announced that the energy storage and power battery production base of Shandong Times New Energy Technology Co., Ltd. has officially commenced production in Yanzhou District, Jining City. This is CATL's first base in the north and currently the largest capacity planning base in the north; the new base is divided into three phases, with the first phase of the project having a total scale of 60GWh. nL4S3RQ008 [Market Summary] Stock Market: -- Major Wall Street indices rose for the fifth consecutive day on Friday, still buoyed by the truce in China-U.S. tariffs earlier this week, despite economic surveys indicating a deterioration in consumer sentiment. The Dow Jones Industrial Average rose by 331.99 points, an increase of 0.78%, closing at 42,654.74 points; the S&P 500 index rose by 41.45 points, an increase of 0.70%, closing at 5,958.38 points; the Nasdaq index rose by 98.78 points, an increase of 0.52%, closing at 19,211.10 points. The S&P 500 index rose about 5.3% for the week, the Nasdaq index rose 7.2%, and the Dow rose 3.4%. .NCN -- European stock markets closed higher, recording a fifth consecutive week of gains, as the trade agreement reached by the U.S. alleviated tariff concerns and was further boosted by strong corporate earnings. The pan-European STOXX 600 index closed up 0.4%. The German stock market rose 0.3%, hovering near historical highs. The UK FTSE 100 index closed up 0.59%, and the French CAC-40 index closed up 0.42%. .EUCN Foreign Exchange Market: -- The U.S. dollar strengthened as the latest round of economic data showed a rebound in April import prices, while consumer confidence remained low in May due to heightened concerns over the impact of Trump's trade policies. The dollar index rose by 0.36%, closing at 101.13, with a weekly increase of about 0.7%, marking the fourth consecutive week of gains and the largest single-week increase in about two and a half months. The euro fell 0.37% against the dollar, closing at 1.1146 dollars, with a weekly decline of 0.9%, marking the largest single-week drop since early February. The dollar rose 0.16% against the yen, reaching 145.89 yen, with a weekly increase of 0.4%. The pound fell 0.2% to 1.327 dollars, with a weekly decline of 0.1%. FRX/CN Bond Market: -- U.S. Treasury yields reversed earlier declines and rose at the close, after Moody's downgraded the U.S. government's rating from Aaa to Aa1, citing potential deterioration in its fiscal performance. Following the downgrade, the yield on the two-year U.S. Treasury bond accelerated its rise, closing up 2 basis points at 3.993%. The benchmark 10-year U.S. Treasury yield reversed earlier declines, reaching a high of 4.499%. US/NCN -- Eurozone government bond yields fell, further distancing themselves from multi-week highs reached earlier this week, due to disappointing U.S. economic data and a decline in risk appetite triggered by the de-escalation of the China-U.S. trade war The yield on Germany's 10-year government bonds fell by 4 basis points to 2.58%, but still rose for the fourth consecutive week. The yield on Germany's 2-year government bonds decreased by 1 basis point to 1.85%. Italy's 10-year yield dropped by 4 basis points to 3.599%, and the spread between Italian and German government bonds slightly narrowed to 99 basis points, maintaining near a four-year low. GVD/EURCN Oil Market: -- Oil prices rose, marking the second consecutive week of gains, due to easing trade tensions between China and the U.S., but expectations of increased supply from Iran and OPEC+ capped oil prices. Brent crude rose by 88 cents, or 1.4%, to $65.41 per barrel; U.S. crude increased by 87 cents, or 1.4%, to $62.49. Both benchmark crude oils saw weekly increases of 1% and 2.4%, respectively. O/NCN Metals: -- Gold prices fell more than 2% at one point, suffering the worst weekly performance since November due to rising risk appetite from the China-U.S. trade agreement. Spot gold closed down 1.16% at $3,202.28 per ounce, with a weekly decline of 3.67%. U.S. futures gold fell by 1.2% to $3,187.2. GOL/HCN -- Copper prices fell for the second consecutive trading day due to weak demand from price-sensitive consumer countries like China, leading to a retreat from recent highs. At 1613 GMT, the London Metal Exchange (LME) three-month copper contract dropped by 1.2% to $9,457.50 per ton. MET/LCN [Today's Highlights] Important Economic Data (GMT time): -- China's April new residential sales prices (around 0130) -- China's April total retail sales of consumer goods, industrial value added above designated size, urban unemployment rate, and fixed asset investment from January to April (0200) -- Eurozone April Harmonized Index of Consumer Prices (HICP) final value (0900) -- U.S. April leading indicators (1400) Major Economic Events and Officials' Speeches (GMT time): -- Danish Foreign Minister Rasmussen visits China (until the 20th) -- Reserve Bank of Australia holds interest rate decision meeting (until the 20th) -- U.S. New York Fed President Williams speaks on economic outlook (1245) -- U.S. Atlanta Fed hosts the 2025 Financial Markets Conference, with President Bostic giving a speech and moderating discussions (1230/1245), Dallas Fed President Logan attending (1715) -- European Commission President von der Leyen visits the UK for a summit -- Bank for International Settlements (BIS) Economic Adviser and Research Director Shin Hyun Song speaks on new risks facing the global financial system Note: For other important financial news, please click on TOP-CMN; for recent "Reuters Morning Report," please click on NN/CN