KBC Sunset Market Commentary 12/02/2025 via Trader Talent

KBC Sunset

Wednesday, February 12, 2025

Daily Market Overview

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Markets

• Today’s trading session was a long-drawn countdown to the US January inflation data. If anything, the drift in EMU yields still was cautiously north. ECB board member Elderson joined recent comments that data are more important to guide short-term policy decision rather than an assessment on the concept of the natural rate for policy. German yields added up 3.0 bps (2-y). US yields returned small gains just before the CPI release as President Trump on social media advocated the need to lower rates. However, his call for sure won’t fit the Fed assessment post today’s US inflation data. Headline CPI inflation rose an outsized 0.5% M/M (highest since August…2023!!) to raise the Y/Y figure back to 3.0% (from 2.9%). Core inflation also jumped from 0.2% M/M and 3.2% in December to 0.4% M/M and 3.3% (vs 3.1% expected). Food (0.4% M/M and 2.5% Y/Y) and energy prices (1.1% M/M) supported the rise in prices but also services inflation (ex-energy) remains elevated at 0.5% M/M and 4.3% Y/Y. Shelter prices don’t show much of a downward dynamic at 0.4% M/M and 4.4% Y/Y. The super-core inflation (core services less housing as calculated by Bloomberg) at 0.76% M/M doesn’t give comfort. The market reaction was straightforward. US yields currently add between 10 bps (5 & 10-y) and 6-8 bps (2-y and 30-y) the belly thus underperforming the wings. Markets now only discount one single 25 bps cut by the end of the year. Interesting to hear first comments from Fed Chair Powell later today as he testifies before the House Financial Services Committee. The context for today’s $42 bln US Treasury 10-y Note sale also profoundly changed. German yields gained in sympathy, albeit modestly, between 5 bps (2-y) and bps (30-y). The bond market sell-off also pressured US equities with losses of about 1.0% for the three major US indices. Damage for the EuroStoxx 50 (-0.2%) stays limited.

• On FX markets, dollar gains again were not exuberant given the sharp rise in yields and the congruent (mainly US) risk-off. DXY gains from about 108 to currently 108.35. The yen clearly underperforms. USD/JPY already rise to from 152.5 to 153.5 before the release to currently extends to 154.2. On the other hand, the euro showed strong resilience with EUR/USD ‘easily’ holding north of 1.03. (1.034 currently). Is some kind of US risk premium building? Recent strength in the likes of the NOK and the SEK (against the euro) is partially reversed. CE currencies (zloty, forint) show negligible losses (against the euro). The Czech koruna even strengthens (EURCZK 25.06).

News & Views

• Indian inflation eased a tad more than expected last month. The yearly print fell from 5.22% to 4.31% compared to the 4.5% estimate. Monthly prices fell 1%, driven by a steep 2.9% m/m decline in food prices. Prices of other components including clothing & footwear, housing and fuel & light rose insufficiently to offset the drag of food. The numbers are welcome news to the Reserve Bank of India (RBI) which last week pivoted towards a first 25 bps rate cut after having kept rates steady for two years. Future decisions would be “based on a fresh assessment of the economic outlook”, it said in the accompanying statement. With CPI closing in on the RBI’s 4% target (+/- 2 ppts), the case for additional rate cuts from the current 6.5% as soon as April 9 is strengthening. The RBI needs to thread carefully though, having the Indian currency in mind. While the rupee appreciated since the start of the week from USD/INR <88 to around 86.88 today, it remains historically weak. USD/INR has also yet to react to the Indian CPI outcome as well as the larger-than-expected US reading of today.

• OPEC in its monthly report kept forecasts for global oil demand growth unchanged for both 2025 and 2026. Demand this year would rise by 1.45 mln barrels a day and by 1.43 mln in 2026. OPEC said air and road travel would support consumption. While the Trump administration added more uncertainty into the markets, OPEC did not take into account the impact of any potential trade tariffs, saying “It remains to be seen how and to what extent potential tariffs and other policy measures will play out.” OPEC holds a more optimistic view on oil demand growth compared to peers. The IEA, for example, sees demand growth at 1.05 mln this year. Oil prices trade a tad lower today around $76/b.