US stocks edge higher while dollar dips after Moody's downgrade

NEW YORK: Wall Street stocks finished a meandering session higher on Monday (May 19), shrugging off Moody's downgrade of US sovereign debt, which could balloon further.

Yields of US Treasury bonds spiked early in the day in a dynamic that revived talk of the "Sell America" narrative that unsettled markets in early April following President Donald Trump's sweeping tariff announcements.

But US Treasury yields subsequently eased as markets concluded that Moody's analysis contained no surprises.

After the knee-jerk reaction, "the market settles down and focuses on the economic fundamentals", said Subadra Rajappa, Head of US rates strategy at Societe Generale.

The downgrade reflects serious concerns about the US's fiscal picture, but they were well known prior to the Moody's downgrade, Rajappa said.

The dollar retreated somewhat against the euro and other major currencies. But the move was less substantial than during most volatile stretches earlier this year.

All three major US indices finished with modest gains. The Dow Jones Industrial Average finished up 0.3 per cent at 42,792.07.

The broad-based S&P 500 edged up 0.1 per cent to 5,963.60, while the tech-rich Nasdaq Composite Index added less than 0.1 per cent at 19,215.46.

Monday's session was the first since Moody's late Friday announced the downgrade, citing rising levels of US government debt and interest payment ratios "to levels that are significantly higher than similarly rated sovereigns".

On Monday, the yields on 10- and 30-year US bonds surged above the levels in early April when President Donald Trump's aggressive tariff announcements sent markets spiralling.

But in comparison with that turbulent period, a closely-watched volatility index remained relatively stable. Stocks have rallied since Trump suspended many of his most onerous tariff measures.

Gold, seen as a safe haven investment, jumped more than 1 per cent.

In Europe, London and Frankfurt erased early losses to close higher after UK and EU leaders reached a series of defense and trade accords at a landmark summit, the first since Britain's acrimonious exit from the European Union.

British Prime Minister Keir Starmer said leaders had agreed a "win-win" deal that his office said would add nearly £9 billion (US$12 billion) to the British economy by 2040.

The euro, meanwhile, strengthened despite a cut to the eurozone's 2025 economic growth forecast due to global trade tensions sparked by Trump's tariffs.

The European Commission said the 20-country single currency area's economy should grow 0.9 per cent in 2025 - down from a previous forecast of 1.3 per cent - due to "a weakening global trade outlook and higher trade policy uncertainty".

"Underpinned by a robust labour market and rising wages, growth is expected to continue in 2025, albeit at a moderate pace," EU economy chief Valdis Dombrovskis said.

In company news, Walmart returned to the list of firms feeling a rollercoaster effect under Trump, after the US president slammed the retail giant for warning of price increases due to his tariffs.

Trump called on the company to "EAT THE TARIFFS" on social media, adding: "I'll be watching."

Walmart shares finished slightly lower on Monday.