KBC Sunrise Market Commentary 10/03/2025 via Trader Talent

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Market Commentary

Markets

•          US payrolls were decent across the board but missed the bar by a slight margin. It triggered only a minor kneejerk upleg in US Treasuries, suggesting some fatigue creeping in after a stellar rally in recent weeks. Powell’s looming noon (US time) speech ahead of the communications blackout kept markets on the sidelines too. The Fed chair said uncertainty around the US economy had increased but that it continues to be in a good place. He doesn’t draw too many conclusions from indicators including weaker confidence surveys since it remains yet to be seen how this will affect future spending and investment. Powell said on inflation that they see ongoing progress in the currently still-elevated categories but the path is expected to remain bumpy. His view can be summarized in a one-liner: “We do not need to be in a hurry, and are well positioned to wait for greater clarity.” Simply sticking to the January message of a(n extended) pause helped form a bottom below US yields, which had been sliding over the last couple of weeks on recessionary concerns driven by weak(ish) data and DOGE, tariff-sparked uncertainty. Rates left the intraday lows to close between 2-4 bps higher. The (very) long end in Europe continues to underperform on the dramatic German fiscal policy U-turn. 30-yr yields added up to 6 bps (swap). The euro in the same vein keeps grabbing a decent bid. EUR/USD’s shy throw for 1.09 failed but the pair nevertheless ended higher and took out the 1.0804 resistance level (61.8% recovery on the Sep-Jan decline) in the process. The trade-weighted dollar index finished with a new four-month low sub 104. Sterling fell against the euro with a second but failed attempt by EUR/GBP to take out 0.84.

•          Markets are ready for a slow start this week. There are a few interesting data releases on tap later though, including in the US even though Chair Powell removed any of the remaining doubts for a pause on March 19. US JOLTS job openings and CPI numbers are due tomorrow and Wednesday. Consumer confidence (Michigan) on Friday is closely watched for any potential sentiment hit. It’s also an important tariff week with Chinese retaliatory measures kicking in today. Wednesday is a US-imposed deadline for 25% tariffs on (European) steel and aluminum. “The ECB and its Watchers” conference kicks of on Wednesday with many high-profile speakers including Lagarde scheduled. The US government is facing shutdown as soon as Friday. The House Republicans have announced a spending bill to keep agencies open through September 30 but it needs the help of Democrats in the Senate to get the 60-40 majority requirement. Should it fail, Congress is likely to pass a temporary bill to buy additional time.
 

News & Views

•          UK labour market conditions continued to weaken midway through the first quarter of 2025, according to the latest KPMG and REC UK Report on Jobs survey, compiled by S&P Global. The subdued economic outlook and rising payroll costs pushed businesses into pausing or paring back hiring plans while permanent placements and temp billings remained in decline as well (though at slower pace than last month). Weaker demand, also visible in a further drop in overall vacancies is met by higher supply (redundancies expand pool of labour) resulting in starting salaries rising at the weakest pace in 4 years. Commenting on the data, survey partners warn that several headwinds to growth remain with changes to National Insurance and the National Living Wage taking effect from April and the Exchequer’s Spring statement likely to be fiscally constrained. Easing pay growth should please the Bank of England though with expectations of further rate cuts offering a glimpse of hope.

•          Japanese base pay rose by 3.1% Y/Y in January, the fastest pace since October 1992. Growth in nominal cash earnings slowed from 4.4% Y/Y to 2.8% Y/Y with real cash earnings, adjusted for price growth, falling by 1.8% Y/Y. The data come as negotiations between Japanese unions and employers are expected to reach initial results later this week (March 14). Japan’s biggest union group last week demanded the highest wage hike since 1993 (6.09% vs 5.85% last year). These wage dynamics support the case for more gradual rate hikes by the BoJ. The central bank raised its policy rate to 0.5% in January. Another 25 bps increase is currently only (fully) discounted by September, but wage deals can easily speed up that timeline. The Japanese yield curve extends the recent bear steepening this morning with yields rising by 3 bps (2-yr) to 8.5 bps (20-yr). The Japanese yen tries to build on last week’s technical break below USD/JPY 148.65, which is the neckline of a double top formation.
 

Graphs

German 10-y Yield

The ECB is nearing a fine-tuning phase where back-to-back reductions are over. The March rate cut (to 2.5%) was complemented by labelling the policy stance as meaningfully less restrictive, opening the door for a potential pause in April, our preferred scenario. For the long end of the curve, upward yield pressure stems from a massive defense investment wave that’s on the way. A test of the 2023 top just above 3% is in the cards.

US 10y yield

After three consecutive cuts, the Fed installed a pause in January which we expect to last at least through June. The Fed wants to see “serial readings” suggesting inflation is progressing towards target. A pause simultaneously offers time to a clearer view on president Trump’s policies. The prolonged Fed rates status quo provides a solid bottom beneath front-end US yields. The long end is more vulnerable on how the explosive policy mix could backfire to the US economy as well.

 

Calendar & table

Contacts