Focus on the RBA resolution, safe-haven demand boosts gold prices, Moody's lowers deposit ratings of major U.S. banks

Basic news

On Tuesday (May 20), spot gold trading was around 3223, and gold prices fluctuated higher on Monday. The dollar weakened and safe-haven demand was driven by Moody's downgrade of the US government's credit rating; U.S. crude oil rose, trading was around $62.21 per barrel, due to signs that the US nuclear program negotiations with Iran broke down, offsetting the impact of Moody's downgrade of the US sovereign credit rating.

Focus on the day

RBA Fed resolution and RBA Chairman Brock held a press conference on monetary policy, and several Fed officials spoke.

Stock Market

U.S. stocks closed nearly flat on Monday, and market sentiment weakened after the US sovereign credit rating was downgraded. After the stock market closed last Friday, Moody's downgraded the U.S. sovereign credit rating from "Aaa" to "Aa1", citing that the U.S. government's outstanding debt was as high as $36 trillion and the interest burden was heavy.

Talley Leger, chief market strategist at TheWealth Consulting Group, said, "It is understandable that the market will react, because Moody's statement was issued after the closing of the stock market, but I think the trading of 'selling US assets' is a bit overly high."

The stock market rebounded from the decline in the early trading and closed almost flat. However, the S&P 500 index continued to rise for the sixth consecutive trading day. Seven of the S&P's 11 sectors rose, with sectors such as healthcare, consumer essentials, industries, materials and utilities leading the gains. The energy and consumer discretionary sectors underperformed.

Dow Jones Industrial Index rose 0.32% to 42,792.07 points;The S&P 500 rose 0.09% to 5963.60 points, while the Nasdaq rose 0.02% to 19215.46 points.

The yield on the 10-year U.S. Treasury rose by 1 basis point to 4.449% due to concerns that the U.S. tax bill would increase debt burdens more than previously expected. U.S. President Trump's xmserving.comprehensive tax cut bill was approved by an important xmserving.committee of Congress on Sunday. Novavax jumped 15% after its coronavirus vaccine was approved by long-awaited U.S. regulators.

Gold market

Gold prices fluctuated higher on Monday, driven by weakening the dollar and safe-haven demand after Moody's downgrade of the U.S. government credit rating. Spot gold rose 0.9% to $3,229.51 an ounce. U.S. gold futures closed up 1.5% at $3,233.5.

Moody's downgraded the U.S. rating from "Aaa" to "Aa1" last Friday, citing rising debt and interest "significantly higher than sovereign states with similar ratings." Overall, in the xmserving.coming months, I think gold is a good safety bet, given the downgrade of the U.S. rating, said Bob Haberkorn, senior market strategist at RJO Futures. For me, it's still a buy-and-hold market,"

The dollar index hit its lowest level since May 8, while Wall Street's main index has slumped. U.S. Treasury Secretary Bescent said on Sunday that if trading partners do not negotiate in "respect", U.S. President Trump will impose tariffs at the tax rate he threatened on April 2, which also turbulent financial markets.

Gold, considered a safe asset under geopolitical and economic uncertainty, has hit record highs many times this year and has risen 23.1% so far this year. Russian President Putin said after a regular phone call with Trump on Monday that efforts to end the Ukraine war are on track and Moscow is ready to cooperate with Ukraine on a memorandum of future peace agreements.

Spot silver rose 0.3% to $32.36 per ounce; palladium 1.1% to $998.26. The World Platinum Investment Association (WPIC) said demand for platinum jewelry in Asian powers is rebounding, which will lead to a global supply shortage of platinum this year beyond expectations. Platinum rose 1.4% to $974.50. Oil markets

Oil prices rose slightly on Monday as signs that U.S. talks with Iran nuclear program collapsed, offsetting The impact of Moody's downgrade of U.S. sovereign credit rating. Brent crude oil futures closed up $0.13 to $65.54 a barrel, while U.S. crude oil futures closed up $0.20 to $62.69 a barrel. Both contracts rose more than 1% last week.

Iranian state media quoted Iranian deputy foreign minister Majid Takht-Ravanchi on Monday as saying if Washington insisted on GermanyHelan stopped uranium enrichment activities and nuclear negotiations will end in vain.

StoneX analyst Alex Hodes said the remarks weakened hopes of a deal that could have paved the way for U.S. sanctions and allowed Iran to increase oil exports from 300,000 to 400,000 barrels per day. "At present, the possibility of this potential growth is very small."

Moody's downgrade of the U.S. sovereign credit rating has raised doubts about the health of the world's largest oil consumer.

U.S. Treasury Secretary Bescent Bescent said President Trump will impose tariffs he threatened last month on trading partners that are not “integrity”, putting additional pressure on oil prices.

Again Capital's partner in New York, John Kilduff, said oil prices may remain volatile for the foreseeable future, with investors paying attention to the latest progress in tariffs, U.S.-Iran negotiations and negotiations to end the Ukraine war. Russian President Putin said after speaking with Trump on Mandarin on Monday that Moscow was preparing to sign a memorandum with Ukraine on a future peace agreement and said efforts to end the war were on the right track.

Foreign exchange market

After unexpectedly lowered U.S. government credit ratings late last Friday, the dollar's exchange rate generally fell on Monday, with exchange rates against safe-haven currencies Japanese yen, Swiss franc and euro hitting new lows in more than a week, and trade tensions also put pressure on the dollar.

U.S. Treasury Secretary Becent said in an exclusive interview with TV on Sunday that countries with lack of "good intentions" in trade negotiations will impose tariffs on them at the tax rate announced on April 2.

But Moody's move to downgrade the U.S.'s highest sovereign credit rating by one level last Friday triggered a decline in the dollar. Moody's reason is concerns about the growing US government's $36 trillion debt.

Before this, Fitch had taken similar actions in the summer of 2023, and S&P Global also lowered its highest rating in the United States as early as 2011. The news caused the dollar to lose its exchange rate against its main xmserving.competitors, after it had risen for four consecutive weeks as a rising optimism about the U.S. trade deal eases concerns about a global recession. But from mid-morning to afternoon trading hours, US dollar selling lost momentum. "For me, this isn't really a game changer: Moody's isn't really telling us what we don't know. We all know what's going on in Washington and the huge budget deficit they predicted," said Marc Chandler, chief market strategist at Bannockburn GlobalForex, New York. On Monday, the dollar fell to 144.665 yen, the lowest since May 8, with New York falling 0.5% at 144.98 yen late in trading. The dollar also fell to its weakest against the Swiss franc in more than a week, at 0.8317 Swiss francs.

Meanwhile, the euro rose 0.6% against the dollar to $1.1232, rising to its highest level since May 9 during the sessionHigh point. The pound rose 0.6% against the dollar to $1.3355. The pound climbed to its highest since April 30 earlier in the session as Britain agreed on Monday to restart its most important defence and trade relations with the EU since Brexit.

Although the dollar fell on Monday, New York Fed President Williams said he did not see a massive withdrawal of funds from U.S. assets, noting that the dollar remains the world's reserve currency.

The United States has begun serious trade negotiations with the EU, which has made investor sentiment slightly better. The talks broke a long deadlock and brought some hope to more deals after Washington signed a framework agreement with the UK earlier this month.

Trump has previously said that he may also reach an agreement with India, Japan and South Korea, but negotiations with Japan appear to be deadlocked due to car tariffs.

In other currencies, the Australian dollar rose 0.66% to $0.6444, after three consecutive declines, the RBA will announce monetary policy on Tuesday, and the market generally expects to cut interest rates by one quarter percentage point. The New York dollar also rose 0.5% to $0.5911.

International News

Two calls for three points Zelensky said he was willing to sign a peace memorandum with Russia

On the 19th local time, Ukrainian President Zelensky said at a briefing after his Mandarin with US President Trump that he emphasized three key demands in his first call with Trump that day: a ceasefire must be achieved, sanctions imposed on Russia, and the United States "do not make any decisions on matters related to Ukraine without Ukraine's participation." Ukraine's position can only be determined after receiving the Russian proposal Zelensky said that Trump introduced to him that the United States and Russia have discussed the memorandum under the bilateral framework of Russia and Ukraine. The document may become the basis for a subsequent ceasefire and ultimately lead to a peace treaty. This memorandum jointly supported by both countries will contain the ceasefire clause. Zelensky said that Russia and Ukraine could sign a memorandum first and then sign an agreement to end the full conflict, according to Russian President Putin. At the same time, Zelensky also pointed out that it is not clear what the specific content of the memorandum proposed with Russia is. He said that from Ukraine's perspective, Ukraine will be able to determine its position after receiving Russia's suggestions on the memorandum. Considering holding a quadron meeting between the United States, Ukraine, Russia and Europe. In addition, Zelensky said that Ukraine is considering holding a joint meeting with the participation of the United States, Ukraine, Russia and the European Union. It was revealed that such a conference could be held in Türkiye, the Vatican or Switzerland. If there is no ceasefire, Europe will impose sanctions on Russia. Zelensky also said that if Russia does not ceasefire, the EU will impose a package of severe sanctions on Russia. Zelensky said he was not disappointed by the fact that the United States did not impose stricter sanctions on Russia and should remain focused for the moment. Zelensky believes that he is sure that Europe will introduce a strong sanctions plan and set a date for implementation. It is reported that Zelensky had two calls with Trump on the 19th. First, both sides conductedA one-on-one separate call, Zelensky followed up with Trump in a joint call, xmserving.communicating with the European xmserving.commission President, France, Italy, Germany and Finland leaders.

Moody's downgrades its deposit ratings for major banks after downgrading its U.S. ratings have downgraded the deposit ratings of some large banks, including Bank of America and JPMorgan Chase, citing the downgrades of the U.S. ratings last Friday and the weakening of the government's ability to support these xmserving.companies. Moody's downgraded the long-term deposit ratings of Bank of America, JPMorgan and Wells Fargo subsidiaries one level to Aa2, to the third-highest level. In addition, Moody's also downgraded the senior unsecured debt ratings of Bank of America and some of its subsidiaries in New York Mellon, downgrading from Aa1 to Aa2. In addition, Moody's has downgraded the long-term counterparty risk ratings of some subsidiaries of Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street and Wells Fargo to Aa2. This is the latest example of the chain reaction caused by the downgrade of Moody's sovereign credit rating. Moody's canceled the U.S.'s highest credit rating, downgraded it to Aa1, and blamed successive administrations and Congresses for the inflation of the budget deficit, saying there was little sign of relief.

The UK and the EU reached a number of agreements on fisheries and trade fields

The British Prime Minister's Office issued a statement on the 19th saying that the UK and the EU have reached agreements in fisheries and trade fields, and it is expected that the relevant agreements will drive the UK's economic growth by nearly 9 billion pounds (1 pound is about 1.34 US dollars) by 2040. British Prime Minister Stamer held a meeting with EU leaders in London that day. After the meeting, the UK and the EU signed a new 12-year fishing agreement to ensure that British fishing boats can continue to enter EU waters and maintain the existing fishing quota for EU fishing boats in UK waters. The British government will invest 360 million pounds to modernize fishing boats and upgrade technical equipment. In addition, the animal and plant quarantine agreement reached between the two parties will simplify the export procedures of UK food and reduce costs, benefiting British xmserving.companies. The Prime Minister's Office said that since Brexit, Britain's exports to the EU have fallen by 21%, and imports have fallen by 7%. The agreement will prompt British burgers, sausage and other products to re-enter the EU market. In the field of environmental protection, the UK and the EU have agreed to connect with their respective carbon emission trading systems to "avoid xmserving.companies being affected by the upcoming carbon taxation that the EU will implement next year." UK steel exports will receive a "tailored" agreement to circumvent new EU regulations and tariffs, which is expected to save British steel manufacturers about £25 million a year. According to the agreement, the UK and the EU will also launch the "Youth Mobility Plan". The Prime Minister's Office said in a statement that the plan will set personnel flow limits and stay periods, and the specific provisions are expected to refer to the agreement between the United Kingdom and Australia, New Zealand and other countries. The agreement will focus on promoting cooperation between the UK and EU in xmserving.combating illegal immigration, including "establishing a repatriation mechanism to coordinate the response to the smuggling problem of the English Channel."

Fed Vice Chairman Jefferson: Central Bank policy is in a very good position to wait and see

Fed Deputy ChairmanPhilip Jefferson said the central bank must ensure that any price increase caused by policy changes does not lead to sustained inflation. U.S. President Donald Trump has imposed xmserving.comprehensive new tariffs on many U.S. trading partners, while proposing and implementing other immigration and regulatory policy reforms. Economists generally expect changes in trade policy to put upward pressure on inflation and curb economic growth, although there is still great uncertainty about the final scale of tariffs and their potential impact on the economy. “I think it’s important that monetary policy must ensure that any price increase does not translate into a sustained rise in inflation,” Jefferson said Monday at the Atlanta Fed’s 2025 Financial Markets Conference in Fernandena Beach, Florida. Jefferson said the Fed's policy stance is in a "very good position" and has "moderate restrictions" on the economy.

JPMorgan believes that the downgrade of the U.S. rating will boost demand for higher-grade corporate bonds

JPMorgan said that as the U.S. loses its last highest credit rating and bond yields rise, high-grade corporate bonds may become more attractive to fund managers. Last Friday, Moody's downgraded its U.S. credit rating, joining Fitch and S&P, which had previously rated the U.S. as the highest non-AAA rating. Moody's said the downgrade was due to concerns about the rapid expansion of debt and fiscal deficits, which would hurt the U.S. position as a global capital destination and push up borrowing costs. JPMorgan strategists Eric Beinstein and Nathaniel Rosenbaum, among others, quoted the views of another report from the bank's interest rate team in a report on Monday, saying investors have questions about how the downgrade will affect Treasury valuations in the xmserving.coming days and even in the medium term. In the short term, given the uncertainty in trade and monetary policy amid structural changes in demand, risks tend to be “steeper” in the yield curve.

BIS: If a large-scale closing of positions in the foreign exchange swap market may trigger a war for the US dollar

Bank for International Settlements (BIS) said that in a time of turmoil in the US market, if investors start closing positions in the US $113 trillion foreign exchange swap market, it may trigger a xmserving.competition for the US dollar. BIS recently estimated that funds and other non-bank financial xmserving.companies have more than $80 trillion in foreign exchange swap positions - borrowing funds in US dollars and promises to repay them at the agreed exchange rate in the future. Swaps are actually short-term debts that are usually held on "off-balance sheet" and are not included in regulatory capital requirements. In a speech at the London School of Economics and Economics, Shin Hyun-song, head of the BIS Ministry of Currency and Economics, pointed out that if investors suddenly rush to remove these positions, the problem will arise. Investors who hedge positions usually hold the euro or yen but still have an obligation to repay the dollar. "If the swap must be extended, you must join the ranks of the xmserving.competition for (USD)." Shin Hyun-sung added that this could lead to a rapid appreciation of the US dollar.

Domestic News

China Construction Bank lowers deposit interest rates for one yearBreakthrough 1%

China Construction Bank lowered the RMB deposit interest rate on May 20, of which the current interest rate was lowered by 5 basis points to 0.05%; regular deposits and withdrawals were all lowered by 15 basis points, 0.65%, 0.85%, 0.95%, and 1.05% respectively; three-year and five-year periods were both lowered by 25 basis points to 1.25% and 1.3%, respectively. The three periods of regular zero deposit and whole withdrawal, whole deposit and zero withdrawal, and principal and interest deposit all fell by 15 basis points. The deposit interest rate for 7-day notice was cut by 15 basis points to 0.3%.

The State Administration of Foreign Exchange: Foreign capital's willingness to allocate RMB assets continued to improve. In late April, foreign investment in domestic stocks turned into net purchases. Li Bin, deputy director and spokesperson of the State Administration of Foreign Exchange, said that in April, the net inflow of cross-border funds of non-bank sectors such as enterprises and individuals was US$17.3 billion. From the main channels, first, my country's foreign trade shows a certain degree of resilience, with a net inflow of cross-border funds under the trade of goods of US$64.9 billion, maintaining a relatively high scale. Second, foreign capital's willingness to allocate RMB assets continues to improve. In April, foreign capital increased its holdings of domestic bonds by US$10.9 billion, at a relatively high level. In late April, foreign investment in domestic stocks turned into net buying. Third, the main outflow channels are stable and orderly. In April, the net outflow of service trade funds remained basically the same month-on-month; the profit remittance of foreign-funded enterprises increased seasonally, but was lower than the same period last year; the foreign direct investment in China and foreign direct investment was basically stable, and the cross-border funds borrowed and remitted by related enterprises changed from net outflow to basic balance.

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