Five major events to happen in the global market this week

Downgrade-Moody's announced on Friday that the U.S. credit score has been lowered, hitting market sentiment and diverting attention to trade negotiations. There are also several important economic data to be released soon.

1) U.S. budget negotiations may end with more spending

Will politicians reduce spending or raise taxes? Both are potential ways to reduce the deficit and cope with the growing debt burden in the United States. These issues seem unimportant in recent years, as borrowing costs are low and funds keep flowing into the United States, regardless of debt-to-GDP ratio.

This time the situation is different, Moody's just pushes it into the spotlight. It is worth noting that S&P and Fitch downgraded their U.S. credit ratings many years ago. However, the cut comes after the confusing decline of U.S. Treasury bond outflows and the USD (USD).

I don't expect politicians to cut social programs—President Donald Trump doesn't want that, nor does he want to raise taxes. Investors would be disappointed if Uncle Sam asked them more, and such a move would be contrary to Republican instinct. This could put more pressure on the dollar. The move has pushed the 30-year yield that affects mortgages to 5%.

2) Which country will be the next country to sign an agreement with the United States?

The United States reached an agreement with the United Kingdom and also eased strict tariffs with China. However, U.S. Treasury Secretary Scott Becente threatened to impose a "reciprocal tariff" announced in early April, which was suddenly postponed until early July.

India, Japan, Switzerland and other countries are reported to be close to reaching an agreement, and the EU, as a major trading partner, seems far away.

In addition, investorsHope to make more progress in the US-China negotiations, after U.S. tariffs were lowered to a maximum of 30% -- but only in August. During this period, recent agreements have boosted market sentiment and investors seem convinced that more agreements will be reached. However, patience will always be exhausted at some point.

3) The RBA is preparing to cut interest rates, but unexpected situations cannot be ruled out. Tuesday, 12:30 Beijing time. The Reserve Bank of Australia (RBA) has been slow to reduce borrowing costs compared to its peers, but it took action in February and is expected to announce another 25 basis points this week.

However, despite the decline in inflation, Australia's recent employment data have performed well. RBA President Michelle Brock and colleagues may surprise the market by keeping interest rates unchanged.

The rate cut could be seen as adapting to global headwinds, especially as the trade war with the United States could weaken China's demand for Australian metals.

4) UK inflation is expected to rise, keeping the pound interest rate high

On Wednesday, 14:00 Beijing time. This time of year – in April and October, UK regulators update energy costs, which leads to significant changes in overall inflation.

Economists expect the overall consumer price index (CPI) to rise from its March low of 2.6%. However, the core CPI (excluding energy and food) is also expected to accelerate, rising from 3.4% to 3.6%.

This could lead to the Bank of England (BoE) keeping interest rates unchanged at the upcoming meeting, thus supporting the GBP.

5) Standard & Poor's global service industry PMI will provide the latest snapshot of the U.S. economy

Thursday, 21:45 Beijing time. How do American companies feel after the trade war is settled? S&P Global’s preliminary purchasing managers index (PMI) will provide some answers to this.

The key data worth paying attention to is the service industry PMI, which represents the largest industry. In April, it has a value of 50.8, just above the 50 dividing line that distinguishes expansion from contraction.

Will it fall below 50? That would be worrying and hit stocks and the dollar. Instead, strong numbers will have the opposite effect.

The final thought

The lack of any top U.S. economic data does not mean that the week will be calm. Instead—this leaves more room for market reactions to headlines, both in terms of trade and budget.

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