Please see below, Brooks Macdonald’s Daily Investment Bulletin which summarises the key factors currently impacting global investment markets. Received today – 20/05/2025
What has happened
If equity markets were looking to take a breather from the latest rally, yesterday saw only the briefest of pauses. Following news of the US sovereign credit rating downgrade from Moody’s last Friday, the US S&P500 equity index opened lower on Monday but rallied through the day to close up in positive territory in local currency price return terms – it was a similar picture in bonds, with US government bond yields higher early on, only to fall back through the day. Overnight, investor sentiment has been buoyed by news that China’s central bank, the People’s Bank of China, has cut its 1-year and 5-year interest rates for the first time since October last year, while over in Australia, the central bank there has also cut its interest rate (for only the second time this cycle) but this move from the Reserve Bank of Australia was widely expected.
Moody’s downgrade criticised
Yesterday saw criticism from the US Trump administration of Moody’s US sovereign credit rating downgrade. US Treasury Secretary Scott Bessent dismissed the move, saying that “Moody’s is a lagging indicator – that’s what everyone thinks of credit agencies”. That view was also shared by White House National Economic Council Director Kevin Hassett who said Moody’s decision was “backward-looking”, while noting the current US administration’s commitment to cut federal spending.
For context, the one-notch cut by Moody’s comes more than a year after the credit rating agency changed its outlook on the US rating to negative (back in November 2023) – furthermore, Moody’s was the last of the big 3 credit agencies to cut the US debt rating from the highest tier – Fitch downgraded in 2023, while Standard & Poor’s cut over a decade earlier in 2011.
US tax cut plans
The US Trump Republican administration are currently negotiating in Congress, a proposal to pass an extension to the 2017 Trump tax cuts which are currently due to expire at the end of this year, as well as introduce new tax cuts. Also tied to those tax proposals, are plans to cut back on government spending in areas such as healthcare, social security programmes, and green energy tax breaks. However, even though Republicans control both houses in Congress, there is disagreement between Republicans as to the scale of spending cuts in particular.
What does Brooks Macdonald think
After the rally from the April lows, the outlook for markets from here might arguably be reduced to the balance between two competing forces: US tax cuts versus US president Trump’s tariff plans. However, it is unfortunately not that simple, and while tax cuts can provide a shot in the arm for near-term consumer spending expectations, it might also store up concerns down the line as regards US government debt sustainability. Optimistically, tax cuts can stimulate economic activity so that the tax base of a country can grow, but it can also make an economy more vulnerable in an economic downturn.
Bloomberg as at 20/05/2025. TR denotes Net Total Return.
Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.
Marcus Blenkinsop
20th May 2025