KBC Sunset Market Commentary 21/08/2025 via Trader Talent

Daily Market Overview

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Markets

•          The HCOB flash Eurozone PMI’s provided a guarded, but after all constructive picture as the economy navigates a new era post the EU-US trade deal. The output composite index increased to from 50.9 to 51.1, the best in 15 months and marking an eight consecutive month of expansion. According to S&P global, the improvement was driven by a further solid improvement in the manufacturing output (output index 52.3; 41 month high). Services activity also rose, albeit only slightly (50.7) and at a slower pace compared to July. Promising: new orders returned to growth for the first time after 14 months of decline, with new business increasing slightly both in the manufacturing and services sectors even as exports orders continue to decline. Better activity and orders also caused companies to extend the recent sequence of job creation, be it at a modest pace and limited to the services sector. The report also mentions inflationary pressures to have picked up in August, with both input and out prices increasing at a faster pace than last month. Despite the rather positive current assessment, business confidence eased for the second consecutive month, suggesting ongoing uncertainty going forward. Regarding the major countries, activity in Germany expanded further (50.9). France neared stabilization (49.8). The rest of the Eurozone continued to register increasing output, albeit with the pace of growth easing slightly from July. After some ‘hesitation’ this week, German yields are again trending north, rising between 4 bps (2-5-y) and 3 bps (30-y). The PMI report provides a perfect narrative for the ECB to adhere a ‘sine die’ policy pause. Markets further scaled back expectations on a final ECB rate cut to about 60% somewhere next year. The Eurostoxx 50 cedes 0.5%. US indices also continue their recent correction (S&P 500 -0.45%). UK yields rebounded after yesterday’s surprise (higher inflation) setback on a decent UK PMI (cf infra) and better than expected monthly UK government budget data. While positive, the latter are highly volatile. Sterling gains marginally against the single currency (EUR/GBP 0.8653).

•          US data evidently still face a long shadow from tomorrow’s Jackson Hole address from Fed Chair Powell. US yields and the dollar eased slightly/briefly after weaker than expected weekly jobless claims (235k from 224k) and a softer than expected Philly Fed business outlook, but the move was soon reversed going into the US PMI’s release.US PMI’s printed much stronger than expected. The composite measure improved to 55.4 from (55.1) as manufacturing activity rebounded sharply (53.3 from 49.8). Services also continued to grow solidly (55.4). S&P also assess that the ‘rise in selling prices for goods and services suggests that consumer price inflation will rise further above the Fed’s 2% target in the coming months. Indeed, combined with the upturn in business activity and hiring, the rise in prices signaled by the survey puts the PMI data more into rate hiking, rather than cutting, territory’. Even so, the market reaction remains guarded; US yields add about 3 bps across the curve. The dollar gains (DXY 98.4, EUR/USD 1.163.
 

News & Views

•          The UK composite PMI joined the global move in August, rising from 51.8 to 53.6 (vs 51.8 expected). It was the strongest rise in private sector business activity since August of last year, led by a solid upturn in the services economy (53.6 from 51.8). New business volumes expanded at the strongest pace since October 2024 while employment was a weak spot, decreasing for the eleventh month running and at a marked pace. Business activity expectations for the year ahead edged up to the highest since October 2024 even as companies report concerns over the impact of recent government policy changes as well as unease emanating from broader geopolitical uncertainty. Input cost inflation meanwhile edged up to its highest since May. Suppliers try to pass on increased National Insurance costs with higher payroll costs also resulting in another robust rise in prices charged.

•          Belgian consumer confidence rose to its highest level in a year in August (-2 from -4). The increase was mainly driven by reduced fears over a rise in unemployment (1 from 7; lowest since February 2022). Consumer expectations for the general economic situation remain unchanged at -26. On a personal level, households intend to save more (21 from 19) and have slightly raised their expectations regarding their own financial situation (-1 from -2). On Monday, the National Bank of Belgium releases its August business confidence indicator with Belgian inflation numbers out next Thursday.
 

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