KBC Sunrise Market Commentary 23/01/2025 via Trader Talent

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Market Commentary

Markets

•  In a session again devoid of important eco data, the 2.0 Trump trade yesterday triggered higher equities and yields rebounding modestly within the established ranges. The US dollar showed no clear trend after dropping earlier this week on better/less worse than feared Trump announcements on trade in the first barrage of Presidential executive orders. (US) equities drew some additional support from president Trump announcing the up to $500 bln Stargate Artificial Intelligence infrastructure project. The S&P500 (+0.61%) intraday touched an all-time record. The Nasdaq is only a whisker way from a similar record (+1.28%). A clear break didn’t occur yet. Yields markets are still in wait and see modus. The impact of Trump 2.0 on inflation is still difficult to quantify. In addition, there is no first guidance from Fed comments as FOMC members are in the black-out period ahead of next week’s policy meeting. Even at that meeting, it is unlikely that Powell and Co will already come with an high profile assessment on the new policy framework. In technical trading, US yields added between 1.5 bps (30-y) and 3.9 bps (5-y). German yields rose about 2.0 bps across the curve. ECB policymakers today also enter their black-out period ahead of next week’s policy decision. Recent comments suggest a broad majority to continue easing at a 25 bps pace. Austrian board member Holzmann is an exception. He said it could be better to wait a bit longer before lowering interest rates again. On FX, the dollar is holding near the correction low set after Trump’s inauguration earlier this week. A risk-on sentiment and markets anticipating/hoping a measured introduction of trade tariffs still provides some relief for most non-USD currencies. DXY (108.2) is holding above the 107.60 support area. EUR/USD hovers in the 1.04 area. An intraday test of the 1.045 area was rejected. A broader constructive risk sentiment also eased pressure on sterling, even as December UK public finance data showed the ever growing budgetary challenge the UK government is facing, amongst other due to higher interest rate costs. EUR/GBP hovers near 0.845.

• Today’s eco calendar again only contains data with intraday market significance, at best (US jobless claims, UK CBI trends orders, EMU consumer confidence). From a market point of view, we look out how the ‘Trump equity rally’ fares as important resistance/all-time records are closing in. In case of a pause it will be interesting to see what this could mean for yields and, even more, for the dollar. Also keep an eye at the yen in the run-up to tomorrow’s BOJ decision. For now, the expected interest rate hike at least doesn’t help the Japanese currency much. USD/JPY (156.5) is holding with the 155-159 ST consolidation range.
 

News & Views

•  The Bank of Korea published a first estimate of Q4 growth figures. GDP stuck to its Q3 growth pace of 0.1% Q/Q while consensus hoped on an acceleration to 0.2%. An expenditure breakdown showed private consumption rising by 0.2% Q/Q mainly due to increases in semi-durable goods (eg clothing) and services. Government consumption rose by 0.5% Q/Q with increased social security benefits in kind. Gross fixed capital formation fell by 0.9% as higher facility investments (+1.6%) failed to make up for shrinking construction investments (-3.2%). Exports were up by 0.3% with especially (IT-related) services contributing. Imports contracted  by 0.1% mainly because of lower goods imports like motor vehicles and crude oil. From a production perspective, growth in services and manufacturing made up for lower activity in agriculture, construction and utilities. South-Korean Y/Y-growth slowed from 1.5% to 1.2% with the 2024 annual pace locking in at 2% (up from 1.4% in 2023). Today’s slow Q4 growth figure keeps the door open for a resumption of the BoK cutting cycle at its February policy meeting.

•  Hungarian economic sentiment deteriorated further in January, with GKI’s indicator matching its lowest level since end 2022 (-18 from -17.3). Details showed a further weakening in both business confidence (-13.9 from -13.3; lowest since Nov 2020) and consumer confidence (-29.6 from -28.7). On the company level, especially prospects in retail and services deteriorated further with the survey at odds with government expectations of a sharp growth rebound this year (+3.4% growth vs +1.8% by EC and +2.5% by GKI). The consumer survey showed Hungarians turning more pessimistic about their financial prospects and the outlook for the wider economy over the next 12 months. The Hungarian forint stabilized near the recent lows recently. Positive risk sentiment plays a role, together with the MNB strengthening the rhetoric (eg Virag yesterday) to maintain the 6.5% policy rate given rising inflation risks. Forint stability plays a key role to reverse the inflation trend.

Graphs

GE 10y yield

The ECB delivered a fourth rate cut in December and dropped the reference to keeping policy restrictive. Inflation forecasts barely changed while the growth outlook deteriorated. Sticking with a data-dependent approach, we think the ECB eyes 25 bps rate cuts in January and March after which a proper evaluation on neutral interest rates is necessary. Money market positions remains too dovish. The German 10-yr yield rebounded to 7-month highs in a steepening trend.

US 10y yield

The Fed cut rates by 25 bps in December but added that “the extent and timing” of further cuts depend on data. Updated forecasts including an upwardly revised neutral rate (3%) and higher inflation forecasts with risks skewed to the upside completed the Fed’s hawkish twist. Higher for longer is back. The 10-yr yield tested the 2024 high (4.73%) on stellar December payrolls, but took a pause assessing the policy of the new US government.

 

Calendar & table

Contacts