KBC Sunset Market Commentary 07/07/2025 via Trader Talent

KBC Sunset

Monday, July 7, 2025

Daily Market Overview

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Markets

• Markets are in outright waiting modus. It’s no waiting for Godot. US president Trump for sure will come up with high profile announcements on trade/tariffs vis-à-vis US trading partners as the July 9 deadline of reduced tariffs (mostly 10%) expires. As was often the case since Liberation Day, there is little visibility on what to expect. What will be announced also remains subject to tactical or other twists. The US administration will start sending letters to trading partners at noon ET today. US Treasury Secretary Bessent today also said that the US will make several announcements on trade deals in the next 48 hours. Some countries might reach a (framework) agreement before July 9. Others simply will be informed on the new tariffs the US intends to impose (from August 1). For others, a pause might be extended as US judges them to continue talks in good faith. Still, the content and detailed implementation of any (framework) deal agreed upon remains uncertain. This also applies to the sectoral tariffs and the likes of the fentanyl levy. This morning US president Trump even added a potential 10% tax levy on countries ‘aligning themselves with the Anti-American policies of BRICS’. Asian equities this morning mostly opened with modest losses. European indices overcame initial weakness (EuroStoxx 50 +0.5%). Comments from the European Commission indicated that the EMU is making progress on an ‘agreement in principle’ with the US. US indices (all near record levels) are losing modestly (S&P 500 -0.4%). Is this a sign markets are expecting an orderly/acceptable outcome? For now, we would rather label it agnosticism. Bond markets resume a modest steepening move. German yields add between 2 (2-y) and 3.5 bps (30-y) The US 2-y yield trades close to unchanged, but the long end adds 3.25 bps. On FX markets, the dollar outperforms. Maybe a ‘divide-et-impera’ US trade strategy, with a different approach against individual counties is (temporarily?) seen as a negative for those currencies and a (temporary?) positive for the dollar. DXY trades near 97.4. BRICS currencies like the South-African rand, the Chinese yuan or the Indian rupee feel some pressure after the Trumps’ call on anti-US BRICS policies. However, also cyclically sensitive currencies like the Aussie (AUD/USD 0.65 from 0.656) and the kiwi dollar (USD/NZD 0.60 from 0.606) are hit hard. EUR/USD also declines from the 1.178 area to currently trade near 1.173. The yen underperforms the euro (EUR/JPY 170.7, USD/JPY 145.6). Headlines recently suggested difficult trade negotiations between the US and Japan. (Fiscal) uncertainty ahead of the July Upper House elections maybe also weighs on the yen and on Japanese LT bonds (30-y + 10 bps at 2.98%). Sterling regains some ground against the euro (EUR/GBP 86.10) after last week’s fiscal driven setback.

News & Views

• Swedish inflation accelerated well beyond expectations in June. The headline number (using a fixed interest rate) printed 0.5% m/m (compared to the 0.1% consensus estimate) and resulted in a 2.9% yearly outcome. It’s sharing the February 2025 reading to be the fastest since January 2024. The measure excluding energy hit a similar 1.5 year high at 0.7% m/m and 3.3% y/y (from 2.5% in May). Today’s print caught markets off guard. Money markets were expecting another rate cut by the Swedish central bank (Riksbank) amid weakening data lately, including a lower-than-expected May CPI, rising unemployment and poor retail sales. The Riksbank itself left the door ajar by saying in its statement that “The forecast for the policy rate entails some probability of another cut this year.” Investors are now no longer certain of that to happen, offering the Swedish currency a boost today. EUR/SEK retreats from 11.26 to 11.16. Swap yields jump up to 8 bps at the front end of the curve.

• The UK government through a spokesman for prime minister Starmer refused to rule out a wealth tax during a reporters briefing today. UK Chancellor Reeves is facing a shortfall of up to £30bn going into the October Budget over a series of U-turns in policy, including last week’s one in the welfare bill that wiped out £5bn in expected savings. Reeves prior to the 2024 general elections ruled out such a tax but is facing growing calls from Labour backbenchers.