KBC Sunset Market Commentary 17/06/2025 via Trader Talent

KBC Sunset

Tuesday, June 17, 2025

Daily Market Overview

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Markets

• US headline retail sales dropped for a second consecutive month. May sales fell by 0.9% M/M while consensus expected a more modest contraction of 0.6%. Seven out of thirteen sales categories posted declines. For the likes of building materials (-2.7% M/M), gasoline (-2% M/M) and motor vehicles (-3.5% M/M), it’s a reversal of anticipation buying we’ve seen in March in the run-up to “Liberation Day”. But spending in the only service-sector category (restaurants & bars) also fell and even at the most rapid pace in slightly over two years’ time (-0.9% M/M). The upside of today’s report was that the above-mentioned categories don’t feed into the government’s calculation of goods spending for GDP. The so-called retail sales control group (sporting goods, furniture, apparel,…) showed a stronger-than-expected 0.4% M/M increase in spending in May and with an upward revision to April’s figure (-0.1% M/M from -0.2% M/M). US Treasuries were slightly better bid in the run-up to today’s numbers and spiked higher immediately after the release. The move lacked follow-up buying and even made them change course because of the more constructive underlying numbers. Today’s retail sales were final input for tomorrow’s FOMC meeting and strengthen the US central bank’s firm position of prioritizing (upside) inflation (risks) over (downside) employment/growth (risks), much to the dislike of US President Trump who’ll be firing new shots at “Mr. Late”. As firing Fed Chair Powell ahead of the end of his term (May 2026) is excluded, some rumours suggest a (very early) nomination of his successor who could via the principle of forward guidance potentially influence markets as a “shadow Fed chair”. Daily changes on the US yield curve currently range between -1 bp and -3 bps in a gentle bull flattening move. Intraday volatility in the dollar was smaller than in the Treasury market with EUR/USD a tad softer at 1.1550 compared with 1.1570 ahead of retail sales. The European eco agenda was light with only stronger than hoped German ZEW investor sentiment (June: expectations component 47.5 from 25.2; third best since early 2022). The build-up to fiscal support (first specific initiatives expected June 24) outweighs the lingering trade war. Changes on the German curve are negligible today with a minor outperformance at the very long end. Oil prices (Brent $75/b from $73) and risk sentiment (stock markets down 0.5% to 1%) are effected by lingering uncertainty over the next step in the Israeli-Iranian conflict (diplomacy and nuclear talks? Expanded Israeli air campaigns? Iranian escalation via street of Hormuz? US involvement?)

News & Views

• The Swedish National Institute of Economic Research (NIER), a government agency, today published its quarterly economic forecast. NIER downwardly revised its 2025 Swedish growth forecast by 0.8% to 0.9%. The downward revision is partly due to a lower estimate of 2024 growth, but also reflects a significantly worse than expected performance in Q1. Especially gross fixed capital formation fell substantially in Q1, leading to an overall negative forecast for 2025. Household consumption growth (1% from 1.2%) and government consumption was also downwardly revised. Still, the economy is expected to recover in H2. After a period of spending reluctance, households are starting from a position of high savings, and with real disposable incomes rising rapidly, household consumption is expected to be a strong driver of the recovery. Growth for 2026 was slightly reduced to 2.7% from 2.9%. NIER also downwardly revised its CPI and CPIF inflation forecasts for this and next year (CPIF 2025 from 2.4% to 2.5%; 2026 from 1.7% to 1.5%). Part of this revision was due to a stronger krone. NIER expects this to allow the Riksbank (RB) to cut its policy rate to 1.75% still this year. The RB as has a regular policy meeting on Thursday. The majority of the market expects a 25 bps cut to 2%.
• The Hungarian Statistical Office reported that full time employees average gross earnings in April were 9.8% higher than in the same month last year (HUF 708 000). Taking into account a 4.2% rise in CPI consumer price inflation in April, real earning were up 5.2%. Net wages at HUF 486 500 were 9.6% higher Y/Y. The rise in gross wages was substantially higher than expected (8.9% Y/Y). Ongoing high (real) wages and its potential impact on services inflation are factors of importance for monetary policy as the MNB still struggles to return inflation within the 3% +/- 1% inflation target band. The MNB recently held the line of communication that a patient and carful approach to monetary policy remains warranted, maintaining tight monetary conditions (policy rate 6.5%).