KBC Sunset Market Commentary 09/01/2025 via Trader Talent

KBC Sunset

Thursday, January 9, 2025

Daily Market Overview

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Markets

• The spotlights remain squarely focused on the UK. Gilts yields gapped another 12 bps higher across the curve at the open this morning before calm returned somewhat. While net daily changes are close to zero today, the sharp uptick over the previous days and increased media attention did force the UK government to respond to urgent questions in parliament today. Treasury’s number two, Darren Jones, said the bond market is functioning in an orderly way and stressed that “There should be no doubt of the government’s commitment to economic stability and sound public finances. This is why meeting the fiscal rules is non-negotiable.” The material yield increase is eroding the limited fiscal headroom Chancellor Reeves has to comply with her self-imposed rule to fund day-to-day public spending with tax receipts by 2029-30. People familiar already told Bloomberg that if updated OBR forecasts end March would indeed show fiscal headroom has been absorbed by risen debt costs, Reeves would resort to spending cuts instead of higher taxes or even worse: change the rules of the game once again as she did back in October. Sterling is headed for back-to-back losses with EUR/GBP briefly topping the 0.84 big figure. The pair is currently trading around 0.838. Cable slipped to the lowest level since November 2023 to hit an intraday low around 1.224 but then paring losses to 1.23.

• Moves in other core areas remain very limited. German rates barely budge and US yields ease a few basis points. Yesterday’s successful 30-yr auction underscored solid demand, especially at such attractive yields. That offered some respite for bonds on a day that had little to offer otherwise. The eco calendar is empty and US markets have either a shortened (bond markets) or no trading session at all (stocks) on this national day of mourning for ex-president Carter. USD changes are confined to tight ranges. JPY outperforms in one of the “bigger” moves today.

News & Views

• UK CFOs in December assumed a slight rise in inflations expectations, the Bank of England Decision Maker Panel survey revealed. Year ahead own price inflation was expected to be 3.8% up from 3.7% in November. 3.8% was also the reported level of realized annual output price inflation in the three months to December of last year. A similar trend was seen in CFO’s CPI inflation expectations. Perceived CPI was 2.5% in the three months to December, down 0.1% from 2.6% but the one year ahead expectations rose from 2.7% to 2.8% in the three months to December. The corresponding measure for three-year ahead CPI inflation expectations was 2.7% from 2.6% in November. Reported annual wage growth eased 0.1% to 5.4%. Expected year-ahead wage growth remained unchanged at 4.0%. Asked about their reaction to the increase in employer national insurance contributions in the Autumn Budget, on average over the November and December surveys, 61% of firms expect to lower profit margins, 54% expect to raise prices, 53% expect lower employment and 39% expect to pay lower wages than they otherwise would have done.

• Eco data in Hungary published today showed a mixed picture. Industrial production in November declined 1.9% M/M (SA) resulting in a 2.9% contraction compared to the same month last year. The statistical office reported falling production volumes in November 2024 in the great majority of the manufacturing subsections, with growth seen only in three subsections including the manufacture of coke and refined petroleum products. In the first 11 months of the year production was 3.9% lower than in the same period last year. Retail sales showed a slightly better picture rising 0.6% M/M and 4.1% Y/Y. YTD November sales growth was reported at 2.9%. The finance Ministry today also indicated that the 2024 budget shortfall probably came out at 4.8%, missing the deficit target of 4.5%. Despite the 2024 overshoot, the government still intends to reduce the budget deficit to 3.7% this year. This budget target however is based on an assumption of 3.4% 2025 GDP growth and 3.2% Inflation, which might be challenging to realize. After being under pressure due to global market sentiment, the forint regains modest ground trading near EUR/HUF 415 compared to reaching weakest levels since end 2022 (416.6 area) earlier this week.