KBC Sunset Market Commentary 18/07/2025 via Trader Talent

KBC Sunset

Friday, July 18, 2025

Daily Market Overview

Dear reader,

there will be no KBC Markets-Economics reports on Monday, July 21. We resume our publications on Tuesday, July 22.

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Markets

• The US dollar is bearing the brunt of Fed Waller blatantly soliciting for a job as Fed chair. The influential Fed governor called for a rate cut as soon as this month during a speech overnight, referring to the risk of the labour market tipping over. In another speech this afternoon he refused to repeat his call, but his wording made it obvious he’s favouring lower rates. “The private sector is not doing as well as people think” and “it wouldn’t take much to tip the labour market”. His comments are probably welcomed by the Trump administration, with the president himself consistently calling for lower rates (as low as 1%). And in case you wondered, Waller said “yes” to the question what he’d answer should president Trump ask him to lead the Fed. There’s little chance the Fed will heed Waller’s call given the majority still backs Powell’s wait-and-see but the greenback is nevertheless under pressure against all G10 peers. The trade-weighted index is printing losses, be it only for the second day so far this month. DXY eases from 98.73 at yesterday’s close to 98.28 currently. EUR/USD tested and bounced off support at 1.1573 (April high) on Thursday and builds on the rebound with gains today to 1.165. Sterling eyes vulnerable. EUR/GBP’s test of 0.87 earlier this week failed, triggering some return action lower initially. That’s being reversed already today with the pair moving towards the 0.866 area. JPY is sharing the laggard’s scoreboard with the USD. The Japanese Upper House is headed for important elections this Sunday. If prime minister Ishiba’s LDP-lead ruling coalition is to lose its majority (as was the case in the more powerful Lower House elections last October), we (and markets) could see party-pressure rising for (costly) measures to address the cost of living crisis deemed responsible for the loss. Watch out for the long end of the Japanese (and others) yield curve in that case. For today and going into the weekend, though, the core bond mood is constructive, particularly in the US. Front end underperformance results from Waller’s comments, pushing yields between 3.5-3.9 bps down in the 2-5 yr bucket. Longer maturities ease about 1.8-2.8 bps. It’s interesting to see how 10-yr inflation expectations are, partially at least, compensating for the loss in real yields. It’s suggestive of lingering concerns for political interference with the independent Fed after the feud between Trump and Powell this week hit the headlines again. More politicians, including Speaker of the House Johnson today, are now weighing in on Fed policy. German bunds underperform vs Treasuries (and swaps), adding 1.3-2.8 bps in a bear steepening – but technically irrelevant – move. European stock markets trade little changed while Wall Street opens with slight gains.

News & Views

• According to rating agency Fitch, the outcome of the presidential elections in May in Poland can exacerbate political uncertainty in the country. It might continue to challenge the government’s capacity to implement fiscal consolidation and economic reforms. Fitch expects that the new president, Karol Nawrocki, is likely to continue challenging the government. In recent years, public finances have deteriorated significantly, with the general government deficit rising from 1.7% in 2021 to 6.6% of GDP. Fitch assess the government’s consolidation plans to be predominantly backloaded. Additional measures are needed to reduce the deficit below 3%. Fitch now forecasts this year’s budget deficit at 6.6%. It might decline to 4% in 2028. Fitch sees the debt to GDP ratio at 64% by 2027 from 55% end 2024, widening its gap above the ‘A’ median and reducing headroom at the current rating level. Fitch currently has a A- rating for Poland with a stable outlook. The next rating review of Fitch is scheduled for September 5.

• The Hungarian Government Debt Management debt agency today announced that it mandated Bank of China and three other financial institutions to organize the issuance of Hungarian Panda bonds intended primarily for Chinese institutional investors. After a USD $4 bln bond issuance in June, AKK this month amended the issuance plan to allow for this Panda bond issuance. Both the USD and the Panda bond issuances serve two purposes: enhancing the flexibility and security of financing.