KBC Sunset Market Commentary 30/04/2025 via Trader Talent

KBC Sunset

Wednesday, April 30, 2025

Daily Market Overview

Dear reader,
There will be no KBC Sunset on Thursday, May 1st and Friday, May 2nd. We resume the publication on Monday, May 5th.

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Markets

• Markets faced a difficult task today, navigating through a busy eco calendar. In the end, Q1 US GDP data triggered a temporary bear steepening of the US yield curve pushing yields in a first reaction 1 bp (2-yr) to 10 bps (30-yr) higher. EUR/USD was unnerved while US equity futures suffered the bigger (stagflation) hit, resulting in opening losses of 1% (Dow) to 2% (Nasdaq). Negative risk sentiment seems to be the dominant factor for the remainder of today’s trading session. GDP growth contracted marginally (-0.3% Q/Qa) in line with consensus (-0.2%). Details however showed that the pullback in personal consumption was less than feared (+1.8% Q/Qa vs 1.2%) while gross private investment (+21.9% Q/Qa !!) surged thanks to business outlays for equipment. Inventories also contributed positively (+2.25 ppt to GDP), but the trio of failed to offset the drag from government spending (-1.4% Q/Qa) and especially net exports (subtracting almost 5 ppt from GDP, most on record). Shallow export growth (1.8% Q/Qa) fainted against surging imports (+41.3% Q/Qa), frontrunning the hawkish shift in US trade policy. When extracting volatile swings in inventories and trade, final sales to private domestic purchasers accelerated marginally from 2.9% Q/Qa in Q4 to 3% in Q1. Better than feared domestic demand was complemented by stronger than expected price pressure with the core PCE price index accelerating from 2.6% Q/Q in Q4 to 3.5% Q/Q, the second fastest pace since Q2 2023. The employment cost index stabilized at 0.9% Q/Q. Today’s US GDP release outshadowed slower job growth pace in the ADP employment survey for April (+62k vs +115k expected) and an unaltered quarterly refunding statement by the US Treasury. EMU eco data for now fail to move the needle in market thinking on the future ECB policy rate path (June rate cut and 1.5% policy rate bottom). Even as today’s numbers showed stronger Q1 GDP growth (0.4% Q/Q from 0.2% and vs 0.2% expected). National inflation numbers generally point to upside risks to Friday’s EMU release as well with German inflation rising by 0.5% M/M (vs 0.4%) and both French and Spanish prices up by 0.6% M/M (vs 0.4% and 0.3% expected respectively). Only Italy bucked the trend (+0.5% M/M vs 0.6% consensus). Both stronger growth and higher inflation complicate the ECB’s June forecasting task.

News & Views

• The Swiss KOF Economic Institute’s economic barometer pointed at a darkening outlook for the Swiss economy. The barometer declined by a strong 6.1 points in April to 97.1. After an increase in March, the index drops below its medium-term average for the first time this year. Negative developments are reflected in the majority of sub-indicators. In particular, manufacturing experiences a strong setback. Similarly, the bundles for other services and hospitality are under downward pressure. Solely financial and insurance services remains nearly unaltered. Within the producing industry (manufacturing and construction), the sub-indicators for different aspects of business activity all show negative developments, except for the sub-indicators for the stock of finished products. Particularly negatively impacted are the sub-indicators for exports, production activity and the competitive situation. Within manufacturing, the indicators for vehicle and also machinery and equipment, for paper and printing producers as well as for the electrical industry are slowing down most noticeably. After strengthening on safe haven flows to EUR/CHF 0.9225 mid-April, the Swiss franc recently eased modestly but at 0.9375 still is a potential deflationary factor to take into account for SNB policy.
• Czech GDP rose by 0.5% Q/Q (+2% Y/Y), mainly driven by household final consumption expenditure. Gross capital formation and external demand also had a slightly positive influence. Hungarian GDP contracted by 0.2% Q/Q (-0.4% Y/Y). Polish CPI inflation rose by 0.4% M/M and 4.2% Y/Y (from 4.9% in March). Food prices rose by 0.8% M/M. Prices of electricity and gas (-0.4%) and fuel prices (-1.7%) declined. The further cooling in the Y/Y measure supports the case for the NBP to restart policy easing at the May 6-7 meeting. Even a 50 bps step might be on the cards.