KBC Sunset Market Commentary 08/04/2025 via Trader Talent

KBC Sunset

Tuesday, April 8, 2025

Daily Market Overview

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Markets

• Core bonds lost ground today. Bunds underperformed US Treasuries, switching places with yesterday. The moves’ sizes differ from Monday too. The violent intraday swings back then made way for a steady and solid rise in German rates with gains varying between 4.4 and 9 bps in a bear flattening move. The jury’s still out, though, whether yesterday marked the low point (especially at the front) against the backdrop of the highly unpredictable trade narrative. ECB’s Simkus on the matter said that the US tariff announcement was much more disappointing than thought; Germany’s Nagel said it significantly worsened the global outlook and for VP de Guindos it represents a paradigm shift. The former hasn’t made up his mind for April yet but in any case ruled out the need to talk about a 50 bps cut. Money markets aren’t contemplating such a move either. Rates in the US add 3.4-7 bps across the curve. Comments from US Treasury Secretary Bessent helped somewhat by keeping the door for negotiations open (‘Tariffs will be a melting ice cube if [trade talks are] successful’) in the same vein as Japan’s push for trade talks this morning triggered a 6% rise in the Nikkei stock index. The 10-yr crawls back above the 4.2% support-turned-into resistance zone. Simply looking at the chart is baffling. In mere hours the most watched and traded 10-yr bond yield erased the 35 bps loss since Trump’s Liberation Day. Today’s gains included, it’s even as if nothing happened. Rising risk premia as a buffer for the huge uncertainty hold sway and are (at least partially) compensating for any growth-related downward pressures. European long-term yields enjoy a floor for similar reasons. Today’s eco calendar contained no major releases but we do look out for tonight’s 3-yr auction and even more tomorrow’s 10-yr and Thursday’s 30-yr sale. They’ll be closely watched for signs whether or not global investor appetite for US debt is already abating. FX markets are basically a mirror image of yesterday, when small and less liquid currencies were dumped and most majors including the dollar and the euro (as well as CHF for risk aversion reasons) gained. The US greenback today underperforms global peers, allowing EUR/USD even with a lackluster euro to eke out a small gain to 1.095. EUR/GBP briefly rose towards 0.86 before fatigue kicked in after the recent stellar rally. The pair currently hovers little changed around 0.856. GBP/USD does bounce back marginally from the 1.27 area to 1.277. The Aussie and kiwi dollar top the leader board while CHF is extending its recent bull run. China’s yuan closed at the weakest level since September 2023. This morning’s fixing suggests authorities are ready and willing to use the currency as a trade war tool. Stock markets trade firm in the green but that doesn’t compensate much for the sharp declines nor does it change the dire technical picture. The EuroStoxx50 adds about 3%, WS opens with similar gains.

News & Views

• After elevated inflation figures in January and in February, March inflation in Hungary came in on the softer side of expectations. Prices were unchanged M/M with the Y/Y-measure declining from 5.6% to 4.7%. In its flash analysis, the central bank (MNB) indicated that while overall inflation stabilized M/M, core inflation still rose by 0.3% but slowed to 5.7% Y/Y. The measure ex indirect taxes slowed to 5.4% from 6.0%. CPI ex processed food eased to 5.3% from 5.9%. Still, sticky price inflation rose marginally from to 5.9%. The annual inflation of tradables rose 0.6% M/M to 2.6% Y/Y. The annual prices of market services eased to 8.6%, largely attributable to the unwinding of the effect of last year’s backward-looking repricing. Prices rose by 0.6% M/M, reflecting accommodation and catering services. Banking and telecommunications services fees remained broadly unchanged. Food price inflation decreased to 6.2%, partially affected by profit margin caps introduced mid-March. HUF 2-y swap yields today declined 9.0 bps after the release as markets again ponder the chances of the MNB further reducing the policy rate below 6.5% in the second half of this year and/or early next year. Of course, aside for the inflation development, this remains highly conditional on the performance of the forint, which weakened back above EUR/HUF 400 in recent risk-off move.

• After easing on the European reflation trade last month, the Swiss franc currently again strengthens closer to the key EUR/CHF 0.92/0.93 support area (currently 0.935). At last month’s policy meeting, the SNB could be relatively confident that inflation could stabilize in the lower part of the 0.0%/2.0% inflation target range. Recent strengthening of the franc including its impact on inflation however might force the SNB again to consider FX interventions or easing the policy rate back to 0% or even back into negative territory (currently 0.25%).