KBC Sunset Market Commentary 13/02/2025 via Trader Talent

KBC Sunset

Thursday, February 13, 2025

Daily Market Overview

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Markets

• President Trump once again took center stage today. It started off with a call with Russian president Putin which blindsided both European and Ukrainian officials. Trump and Putin agreed that talks about ending the war should begin immediately and plan to meet each other in person. It’s the start of a most likely bumpy and long process, but it’s the biggest step so far towards a truce and eventually peace. The news sparked a broad risk-on move in which CE currencies, due to their geographical proximity, profited in particular. EUR/HUF was moving towards the symbolical 400 barrier & the zloty hit a new multi-year low against the euro. The common currency itself was better bid against the US dollar, supported by growing hope for reduced geopolitical uncertainty and European growth picking up on lower energy prices & the need to rebuild Ukraine. EUR/USD strengthened towards 1.0440. European stock markets gained well above 1%, supported amongst others by the industrial sector. Core bond yields were the odd ones out, easing a few basis points in early trading. It makes some sense for the US, where some cooldown was due after a sharp >10 bps rise in the CPI aftermath. For Europe it’s not as obvious, although potential truce talks do bring about conflicting market forces of lower energy prices (e.g. 10% decline EU gas price, reducing LT inflation expectations) and a reduced geopolitical risk premium vs more upbeat growth narrative (higher LT real yields).
• “THREE GREAT WEEKS, PERHAPS THE BEST EVER, BUT TODAY IS THE BIG ONE: RECIPROCAL TARIFFS!!! MAKE AMERICA GREAT AGAIN!!!” That’s coming from the same person that’s trying to broker a peace deal, mere hours after the telephone call. In split seconds, most of the above described moves reversed. EUR/USD turned south back to opening levels just below 1.04 and CE currencies give back most if not all of their previous gains. Core bond yield losses deepened, leading to net daily changes varying between -4 and -6 bps in Germany. US Treasuries outperform, shedding 4-6.8 bps. Second-tier PPI data and jobless claims barely moved a needle, even though both were strong. Equities … don’t care. The EuroStoxx50 holds on to its 1.4% gains and is less than a percent away from the record high seen in 2000.

News & Views

• Inflation in Switzerland eased further in January. Prices declined 0.1% M/M easing the Y/Y measure from 0.6% to 0.4%, the slowest yearly pace since April 2021. The Swiss Statistical Office analyses that the 0.1% decrease is due to several factors including lower prices for electricity and supplementary accommodation, air transport & clothing and footwear (seasonal sales). Core inflation (ex. food, energy, tobacco and seasonal goods) also eased -0.1% M/M. The Y/Y measure rebounded from 0.7% to 0.9%. Aside from lower energy bills, disinflation/deflation mainly was due a further decline of goods prices (-0.8% M/M and -1.8% Y/Y). Services prices rose 0.4% M/M and 1.8% Y/Y. At the December policy meeting, SNB forecasted inflation at 0.3% Y/Y both for Q1 2025 as for the yearly average. The SNB defines price stability as price rises within the 0.0%-2.0% range. Today’s data cement expectations for the SNB to further reduce the policy rate from 0.5% to 0.25% at the March 20 meeting. In recent comments, SNB governor Schlegel indicated that, while SNB doesn’t like to return to negative rates, it remains an option if inflation would stay too low for too long. For now, we expect SNB to keep some room of maneuver if data (and the franc) allow to do so. After weakening earlier this week (European risk-on), the Swiss franc regained modest ground post the inflation data (higher core). At EUR/CHF 0.946, the pair still is some distance away from the key 0.9250/00 area (cycle lows) which probably is also an important reference for the SNB.

• The Statistical Office of Poland today published preliminary GDP growth data for Q4 of last year. Activity in the country in Q4 rebound 1.3% Q/Q to be 3.2% higher compared to the 4th quarter of the previous year. It also was a materially improvement compared to a near stand-still in the previous quarter (0.1% Q/Q). No details on the composition were announced. They are expected February 27. CE currencies, including the zloty, recently performed well, amongst others, as markets started the ponder the potential positive impact on the region from an end of the war In Ukraine. EUR/PLN yesterday touched the lowest levels (top for the zloty) since April 2018, but fell prey to some profit taking today (EUR/PLN 4.173).