KBC Sunrise Market Commentary 04/06/2025 via Trader Talent

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Market Commentary

Markets

•          Strong JOLTS data kicked of the US economic calendar yesterday. Job openings in April unexpectedly rose from an upwardly revised 7.2 mln to just shy of 7.4 mln. The broader trend – fluctuating between 7-8 mln and near the pre-pandemic high – is indicative of ongoing labour market resilience and strengthens ongoing Fed talk of “wait and see”. US yields turned a small intraday 2-3 bps decline into 1-2 bps rise. European yield changes were negligible on a net daily basis. Below-consensus European inflation numbers barely changed money market rate cut bets. Tomorrow’s 25 bps reduction is fully priced in with at least another such move discounted for later this year. Gilts outperformed both Bunds and Treasuries with the long end of the curve showing declines of up to 4.3 bps. We suspect it is related to Bank of England Mann’s speech that opened the debate for a slower QT pace. The US dollar advanced against all of its most important peers in a technically insignificant move that was drawn out across the session. The trade-weighted index rose from 98.6 to 99.24, EUR/USD ventured from 1.144 to 1.137. Sterling withstood the relative interest rate support loss well. EUR/GBP slid from 0.844+ to 0.841.

•          Trump’s import tariff raise on steel and aluminum to 50% from 25% kicks in from today. It sets a challenging stage for the freshly elected South Korean president Lee Jae-myung. SK is a key steel exporter to the US and additionally faces an across-the-board Liberation Day 25% levy if trade talks with the US fail. Lee during his campaign over the last couple of weeks promised a $25bn stimulus package (>1% of GDP) to revive the economy and created a sense of a generally looser fiscal policy than under his predecessor. Lee’s victory is sending reflationary vibes through SK markets. Stocks outperform (2.5%), the SK currency leads the Asian scoreboard and government bond yields rise up to 14 bps at the long end. Moves in core bond and FX markets are muted ahead of another batch of US eco data. The ADP job report (+114k expected) serves as a prelude to the official payrolls report this Friday. The May services ISM (seen at 52.0 from 51.6) is of bigger importance to markets. A stagflation narrative similar to Monday’s manufacturing ISM could again weigh both the dollar and US Treasuries. EUR/USD 1.1473 is intermediate resistance ahead of the April 1.1573 high. The Fed’s Beige Book release marks the start of the June policy meeting cycle.
 

News & Views

•          Australian GDP growth slowed down more than expected in Q1 2025: from 0.6% Q/Q in Q4 2024 to 0.2% Q/Q (+1.3% Y/Y). The Bureau of Statistics indicated that public spending recorded the largest detraction from growth since the Q3 2017. Government spending remained flat while investments declined by 2% on the quarter. Extreme weather events reduced domestic final demand and exports. Weather impacts were particularly evident in mining, tourism and shipping. Household spending slowed from 0.7% Q/Q to 0.4% with spending on essentials continuing to be amongst the highest contributors. Households also spent more on energy because of warmer than average weather and a decline in electricity rebates. The household saving ratio rose from 3.9% to 5.2% with gross disposable income up 2.4%. Net trade detracted 0.1 ppt from growth especially as coal and LNG exports were impacted by weather disruptions to production and shipping. Private investments rose by 0.7% Q/Q, led by housing. The weather-influenced GDP data don’t rule anything in or out for the Reserve Bank of Australia. They cut the policy rate twice now (February & May), with money markets convinced that the central bank has room to accelerate with first back-to-back action in July. AUD/USD sticks within the extremely tight 0.6350-0.6550 range in place since mid-April.

•          German Finance minister Klingbeil will today present corporate tax incentives at a cabinet meeting which could cost around €46bn in total by 2029 according to government estimates seen by the Financial Times. The tax breaks come on top of the >€1tn debt-funded public spending plans. According to the FT, companies would be able to deduct 30% of the cost of new machinery and other equipment from their tax bill annually between 2025 and 2027 (starting July 1st). From 2028, the federal corporate tax rate of 15% would then decrease by one point each year to 10%. Companies will also be allowed to depreciate 75% of the purchase price of new electric vehicles on year one, and thus reduce their taxable income. The government also intends to introduce more advantageous tax incentives for R&D spending.
 

Graphs

German 10-y yield

Confidence that inflation is returning to 2% allowed the ECB to reduce to policy rate to 2.25% in April, reaching neutral territory. The ECB now moves to an outright data-dependent approach, but overall uncertainty remains elevated. German bunds ever more gain safe haven status as uncertainty with respect to US assets intensifies. This slowed the rise in LT yields when market focus shifted from tariff wars to public finances.
 

US 10y yield

The Fed’s priority stays on inflation until the labour market is visibly weakening. It suggests steady policy rates at least until after Summer, supporting the bottom below front end yields. Long term bond yields trend higher again as President Trump’s big, beautiful, deficit-increasing bill moves its way through US Congress.

 

Calendar & table

Contacts