20/05/2025

BIZ & FINANCE TUESDAY | MAY 20, 2025

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Longer-dated US Treasuries sell-off o Moody’s rating downgrade and tax cut bill erode confidence in dollar markets

SINGAPORE: Longer-dated US Treasury yields rose yesterday, after Moody’s became the latest among major credit ratings agencies to cut its ratings on the country’s debt, further eroding confidence in dollar markets. Moody’s Investors Service downgraded the credit rating for the world’s largest economy by a notch to “Aa1” from “Aaa” last Friday, citing large fiscal deficits and growing interest costs. The agency’s move was not much of a surprise to investors, given peers Fitch and S&P Global had downgraded the United States much earlier. Markets also took stock of US President Donald Trump’s sweeping tax cut bill that won approval from a key congressional committee on Sunday to advance toward possible passage in the House of Representatives later this week. Nonpartisan analysts say the bill would potentially add US$3 trillion to US$5 trillion to the nation’s ballooning US$36.2 trillion debt pile over the next decade. The yield on 30-year Treasury notes jumped nearly 10 basis points and was last at 5%, close to its highs for the year. “Confidence has been shaken (in US markets) and it is going to take some time for that to return and that’s going to leave participants jumping at shadows a little bit,” said Tony Sycamore, market analyst at IG. “The reaction has been getting back to concerning levels for the 30-year yield and certainly that long end is showing some signs of distress.” Investor confidence in US financial assets has been steadily eroding this year as Trump’s erratic and aggressive trade policies stoke recession fears and shake longstanding faith in the dollar. Those concerns have also weighed on US stocks and bonds, and driven 10-year yields up 50 basis points in around six weeks. Yields on 10-year Treasuries were up about 8 basis points and last at 4.5%, while shorter-dated 2-year notes were broadly muted. The spike in yields weighed on Wall Street’s

People walking outside 7 World Trade Centre, home of Moody’s Corporation headquarters, in New York. – AFPPIC

main stock index futures, with those tracking the benchmark S&P 500 and the tech-heavy Nasdaq dropping more than 1% each. The greenback was flat. HSBC analysts said the dollar’s future largely hinges on how Treasuries react to the fiscal situation and ongoing budget debate. “The best outcome for the US dollar might be stability in the fiscal backdrop, with market-friendly tax cuts paid for through targeted spending cuts,” they wrote. They warned of a “Triple Threat” scenario, where US yields rise, equities fall and the dollar weakens.

Analysts at Mirabaud Equity Research said the downgrade was not a serious technical development as most banks, clearing houses and money market funds still treat Treasuries as if they were triple-A rated and capital requirements or margin calls will not change. “But symbolically? It’s an earthquake. When the last bastion of credibility falls, it’s not the financial mechanism that fails ... it’s confidence. “And if the markets pretend to ignore it today, they could pay a higher price tomorrow, because the dynamics of the revaluation of sovereign risk never warn you when they get out of control.” – Reuters

Spain blocks more than 65,000 Airbnb holiday rental listings MADRID: Spain’s Consumer Rights Ministry said yesterday it had ordered Airbnb to withdraw more than 65,000 listings for holiday rentals from its platform, saying they violated existing rules. The Spanish government as well as city councils and regional authorities have launched a general crackdown on tourism rentals via sites such as Airbnb and Booking.com, which many Spaniards say are creating excess tourism, cramping housing stock and making renting unaffordable for locals. Most of the Airbnb listings to be blocked did not include their licence number, while others did not specify whether the owner was an individual or a corporation, the ministry said in a statement. A spokesperson for Airbnb did not immediately respond to a request for comment. Consumer Minister Pablo Bustinduy has said his goal is to end the general “lack of control” and“illegality”in the holiday rental business and “favour access to housing and protect consumer rights”. Barcelona Mayor Jaume Collboni took Spain’s toughest move so far in June last year when he ordered a total ban on tourism rentals by 2028. – Reuters

Canada pauses some counter tariffs against America OTTAWA: Canada has temporarily paused some counter tariffs against the United States, but Finance Minister Francois-Philippe Champagne on Sunday pushed back against claims they have all been quietly lifted. Gazette , the government’s official newspaper, along with a pause on tariffs on products used in food and beverage processing and packaging, health, manufacturing, national security and public safety. “To retaliate against US tariffs, Canada launched largest-ever response – including $60B of tariffs on end-use goods. 70% of those tariffs are still in place,” he said on X.

Canada’s tariffs response, his office told AFP, “was calibrated to respond to the US while limiting economic harm to Canada”. Tariffs relief was provided for six months to give some Canadian companies “more time to adjust their supply chains and become less dependent on American suppliers”, Champagne spokesperson Audrey Milette said. Canada continues to charge tariffs on roughly C$43 billion (RM133 billion) of US goods, she added. – AFP

The government of Prime Minister Mark Carney, who won Canada’s April 28 election on a pledge to stand up to US President Donald Trump, had slapped counter tariffs on billions of dollars of imports from the United States in response to US tariffs on Canadian goods. During the election campaign, automakers were offered a reprieve, provided they maintained production and investment in Canada. This was outlined on May 7 in the Canada

Oxford Economics said in a report this week that the exemptions covered so many categories of products that the tariffs rate against the United States was effectively dropped to “nearly zero”. Opposition leader Pierre Poilievre pounced on the claim, widely cited in the media, to accuse Carney of having “quietly dropped retaliatory tariffs to ‘nearly zero’ without telling anyone”. Champagne called those assertions “falsehoods.”

Diageo plans US$500 million in cost savings by 2028 LONDON: Diageo, the maker of Johnnie Walker whisky and Guinness stout, launched a plan to save US$500 million (RM2.1 billion) by 2028 after years of sales declines and lowered the expected hit from US tariffs after Washington held off threats of higher duties, for now. per annum from fiscal 2026 and reduce debt, CEO Debra Crew said in a trading statement. “It will also ensure that we are well-positioned to deliver sustainable, consistent performance while maximising shareholder returns; even if current trading conditions persist,” Crew said. The company warned of a US$150 million annualised hit from US President Donald Trump’s The plan will help the world’s top spirits maker deliver about US$3 billion free cash flow

tariffs, lower than the roughly US$200 million it had estimated in February, after threats of a 25% levy on Mexican tequila and Canadian whisky did not materialise. Diageo generates around 45% of sales in the United States from products that must be made in either Mexico or Canada, such as Don Julio tequila and Crown Royal Canadian whisky.

The company reported a 5.9% rise in third-quarter organic sales, and affirmed its full-year forecast. Diageo said growth benefited from an acceleration in shipments to North America ahead of the imposition of tariffs, and expects this effect to reverse in the fourth quarter. – Reuters