Investing.com - A decision by Moody’s to downgrade its rating of U.S. credit has helped set the tone for the new trading week. Markets will keeping close tabs on Congress, as lawmakers in the House of Representatives push to pass a sweeping new tax bill. Elsewhere, tariffs are due to be in focus when a bevy of retailers deliver their latest earnings in the coming days.
1. Bessent on Moody’s downgrade
U.S. Treasury Secretary Scott Bessent said ratings from Moody’s were a "lagging indicator".
Speaking in an interview with NBC News’ "Meet the Press" on Sunday, Bessent added that he believes "that’s what everyone thinks" of the grades from credit agencies like Moody’s.
Lowering its rating of U.S. credit by one tick to "Aa1" from "Aaa", Moody’s noted on Friday that debt and interest in the country are "significantly higher than similarly rated sovereigns". The U.S. currently faces a $36.22 trillion debt pile, according to the Treasury Department.
In a statement, Moody’s added that "successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs".
2. Tax bill latest
Against this backdrop, the House may vote later this week on U.S. President Donald Trump’s sweeping budget bill, which nonpartisan analysts have said could add $3 trillion to $5 trillion to the national debt over the next decade.
Republican lawmakers in the House of Representatives are racing to pass Trump’s so-called "big, beautiful" tax bill prior to May 26.
Despite ongoing internal disagreements over the legislation in the Republican party, this effort received a boost on Sunday, when the measure won approval from a key congressional committee.
Crucially, four hard-line GOP conservatives on the committee gave their assent to the bill moving forward, after having blocked its passage late last week. Still, one of those representatives told reporters that, while "progress" has been made, "we didn’t get nearly far enough".
Trump has called for an extension to his 2017 tax reductions and cuts to taxes on some forms of income, including tips, as well as a jump in spending on defense and border security. Some Republicans, however, are still asking for deeper decreases in programs such as Medicaid and the removal of tax credits for green initiatives previously introduced by Democrats.
3. Retailers to report after Walmart (NYSE:WMT) flags tariff-driven price hikes
On the earnings calendar this week, results from retail chains such as Home Depot (NYSE:HD) and Target will be in the spotlight, with investors anxious to see if they will follow peer Walmart in predicting future tariff-driven price hikes.
Last week, executives at Walmart, the world’s biggest retailer that has become something of a bellwether for U.S. consumer sentiment, said the levies will force it to begin raising prices in the coming weeks.
It was one of the first -- and most explicit -- indications that Trump’s aggressive tariff agenda was beginning to impact American shoppers.
On Saturday, Trump said that Walmart should be willing to "eat the tariffs" rather than use the duties as a reason for increasing prices. The company responded that it was working to keep prices as low as possible.
A separate gauge of U.S. consumer sentiment from the University of Michigan was also weaker than anticipated, while inflation expectations rose. The survey said respondents had flagged fears over the tariffs.
4. PMI data
S&P Global’s flash U.S. purchasing managers’ index for May will also be one of the headliners of a relatively muted slate of economic data releases this week.
The tracker of business activity dropped to 50.6 in April, slowing from 53.5 in the prior month and hovering just above the 50-point mark that denotes expansion.
Outside of the U.S., China’s industrial output in April slowed, official data showed on Monday. However, the sector’s output of 6.1% from a year ago was faster than projections of 5.5%, according to Reuters.
Meanwhile, retail sales in the world’s second-largest economy increased by 5.1% during the month, cooling from 5.9% in March. Analysts had seen the figure at 5.5%. Sluggish consumer spending, as well as a protracted property crisis, have recently weighed on the Chinese economy and sparked fresh stimulus measures from Beijing.
5. JPMorgan investor day
Tariffs could be a major talking point at top U.S. lender JPMorgan Chase (NYSE:JPM)’s much-anticipated investor day on Monday, where CEO Jamie Dimon is tipped to provide updates on his view of the implications of the levies.
Trump’s announcement of elevated "reciprocal" tariffs at an April 2 event roiled global stock and bond markets, persuading some investors to edge away from American assets. Still, recent signs of progress in ongoing trade negotiations have emerged, particularly a delay and lowering in punishing tit-for-tat tariffs between the U.S. and China last week.
Despite the recent concessions, universal 10% U.S. tariffs remain in effect, as well as other duties on items like steel, aluminum and auto parts. By some estimates, the U.S. effective tariff rate is now at its highest level since the 1930s.
Dimon has flagged "considerable turbulence" in the overall economy that could lead clients to pull back on dealmaking activity, although analysts cited by Reuters said they do not expect JPMorgan to announce significant changes to its financial guidance.