EUROPEAN EQUITY UPDATE: Risk tone subdued by Moody's US downgrade

STOXX 600: -0.5%

• European bourses opened lower across the board and have been trading sideways throughout the morning. Pressure which follows on from a mostly negative APAC session, stemming from the latest Moody’s downgrade on the US.


• In brief, Moody’s downgraded its US sovereign rating by a single notch to AA1 from AAA; outlook Stable from Negative. The Agency cited the numerous failed attempts to reverse widening deficits. In response, the White House said it was “focused on fixing Biden's mess”, whilst Treasury Secretary Bessent said Moody’s is a lagging indicator.


• In terms of trade updates, nothing by way of significant progress but to highlight some weekend remarks; US President Trump said he would be willing to travel to China to speak with Chinese President Xi regarding foreign policy and economic issues. Elsewhere, US Treasury Secretary Bessent said countries will get a letter with a US tariff rate if they are not negotiating in good faith and he thinks that rate would be the April 2nd level. Away from that, an interesting report via CNBC highlighted that many importers are paying more than the agreed 30% tariff rate, due to “stacking”.


• In terms of the EU-UK deal; the readout has highlighted the continued effort to support travel and offer a balanced youth experience scheme.


• Docket thus far has been exceptionally light, and aside from Final EZ HICP, this will remain the case.

Sectors: Negative

• European sectors opened mixed but now display a mostly negative picture.


• Optimised Personal Care tops the pile, joined closely by Insurance and then Healthcare. Food Beverage was the initial outperformer, but is now flat; the earlier gains were facilitated by post-earning upside in Diageo (+0.3%). The Co. reported a beat on Net Sales and announced USD 500mln cost savings plan.


• Travel & Leisure fails to materially benefit from post-earning strength in Ryanair (+0.8%). The Co. reported in-line metrics and announced a EUR 750mln follow-on share buyback.

Majors: DAX 40 U/C, Euro Stoxx 50 -0.5%, CAC 40 -0.4%

• The DAX 40 is flat/modestly lower, in-fitting with the broader risk tone. Commerzbank (+1%) tops the pile, likely benefiting from commentary via Chancellor Merz, who suggested that he does not expect UniCredit (+2%) to make a full bid for Commerzbank at present time. The broadly higher yield environment will also be helping.


• The CAC 40 is pressured by losses in the Luxury space today, following on from mixed Chinese Activity data overnight. More pertinent for the likes of Hermes (-1.8%)/Kering (-1.2%) is the weaker-than-expected Retail Sales figure which printed at 5.1% (exp. 5.5%) - overall highlighting the uncertain recovery in the region.

US Equity Futures: ES -1.2%, NQ -1.6%, RTY -1.5%

• Futures are entirely in the red, as the region reacts to a Moody’s US downgrade from Aaa to AA1; outlook Stable from Negative.


• The data docket ahead is very light, only Leading Index Change is scheduled. Therefore, more focus will be on a slew of Fed speakers which include; Bostic, Williams, Jefferson, Logan and Kashkari.

19 May 2025 - 09:55- ForexData- Source: Newsquawk