Morning Wrap: ASX 200 to rise, S&P 500 shrugs off US credit downgrade, RBA expected to cut rates

ASX 200 futures are up 73pts (+0.87%) as of 8:30 am AEST.

In a nutshell:

• US stocks shrugged off early credit-downgrade-related weakness to close mostly higher

• Fed officials dial back rate cut expectations as more time is needed to assess economic impacts

• RBA widely expected to cut rates by 25 bps to 3.85% at 2:30 pm

Let's dive in.

S&P 500 SESSION CHART

S&P 500 claws back early losses to close slightly higher (Source: TradingView)

OVERNIGHT MARKETS

• Major US benchmarks finished mostly higher, clawing back early losses

• S&P 500 marked its sixth straight gain despite falling as much as 1.05% in early trade, now up 23% from April low and up 1% year-to-date

• Moody’s US credit rating downgrade so far appears like a non-event, with yields, VIX and gold all fading initial spikes and equities generally higher 

• Positioning tailwind has lost some momentum, with Goldman Sachs noting US equities saw the largest net buying last week since Dec-21, driven by short covering and to a lesser extent, long buys

• BofA says US credit downgrade won’t drive forced selling of US debut but may worsen Treasury sentiment, which has been amplified by rising expectations of deficit to hit 7% in FY26-27

• Magnificent 7 still down year-to-date, despite S&P 500 recovering following tariff driven selloff (BBG)

STOCKS

• Microsoft says it is adding Elon Musk's Grok AI to its cloud service (AX)

• JPMorgan says net interest income outlook is now 'slightly better' (BBG)

• Regeneron to buy bankrupt 23&Me for $256m (CNN)

• Xiaomi set to introduce 3nm mobile chip and invest ~$7bn in chip design over next decade (WSJ)

• Nvidia announces major Taiwan investments (WSJ)

CENTRAL BANKS

• NY Fed Williams says it won’t be until July that the Fed understands what is happening with economic outlook, may not be ready to cut until September (BBG)

• Fed Bostic says the Fed needs to wait 3-6 months to start to see where the economy is settling, sees just one cut this year (CNBC)

TARIFFS

• Bessent warns countries not negotiating “in good faith” could see US resetting to the reciprocal tariffs announced on 3-Apr (RT)

• China says US undermined trade talks with Huawei chip warning (CNBC)

• UK and EU strike landmark deal to lessen trade barriers and boost security cooperation (BBC)

• Japan's PM Ishiba won't compromise its national interest in trade talks with the US, signaling they aren't rushing to an agreement (BBG)

• China starts allowing some rare earth shipments under new export controls, but slow approval rates may disrupt supply chains (FT)

• UK and EU agree post-Brexit reset after 'breakthrough' in talks (BBG)

ECONOMY

• China's industrial output growth slowed to 6.1% in April (vs. 7.7% in March but above 5.5% ests), while retail sales growth of 5.1% missed expectations of 5.5% (CNBC)

• China's new home prices fell 0.12% in April, a faster pace than the 0.08% decline in March (BBG)

• European Commission cuts inflation outlook to 1.7% in 2026, sees economic expansion picking up to 1.4% from 0.9% in 2025 (BBG)

ASX TODAY

• Atlas Arteria holder Diamond Infraco 1 – on behalf of IFM – confirms 32.58% stake vs. prior 29.88% (ALX)

• Rio Tinto partners with Codelco to develop Salar de Maricunga Project in Chile, will acquire a 49.99% interest and provide $350m of initial funding towards studies and resource analysis (RIO)

WHAT TO WATCH TODAY

• Stocks to bounce: The ASX 200 is set to bounce after the market shrugged off Moody's US credit rating downgrade. I guess the reason behind this is i) US debt issues are well-known and ii) S&P and Fitch already downgraded US's credit rating in 2011 and 2023 respectively. This means their credit rating is now a unanimous AA+.

• RBA decision: The RBA is widely expected to cut rates by 25 bps to 3.85% at 2:30 pm today.

• Key earnings: Technology One will reports its 1H25 earnings. Goldman Sachs is expecting ARR growth of 19% to $504m, revenue growth of 14% to $278m, acceleration in profit before tax growth of 24% to $76m.

BROKER MOVES

• Fisher & Paykel downgraded to Neutral from Buy; but target up to NZ$39 from $37.30 (UBS)

• Paragon Care upgraded to Buy from Hold; target remain $0.52 (BP)

Stocks trading ex-dividend: 

• Tue 20 May: Sandon Capital Investments (SNC) – $0.014

• Wed 21 May: Amcor (AMC) – $0.20

• Thu 22 May: Aristocrat Leisure (ALL) – $0.44, Orica (ORI) – $0.25

• Fri 23 May: None

Other ASX corporate actions today: 

• Dividends paid: Saferoads (SRH)

• Earnings: James Hardie (JHX), Technology One (TNE)

• IPOs: None

• AGMs: Viva Energy (VEA)

Economic calendar (AEST):

• 2:30 pm: RBA Interest Rate Decision (Ests: 25 bp cut to 3.85%)

• 10:30 pm: Canada Inflation (Apr)