KBC Sunrise Market Commentary 10/06/2025 via Trader Talent

Please click here to read the PDF version

Market Commentary

Markets

•          US yields gave up a couple of basis points from Friday’s surge yesterday in choppy trading. The move end last week was inspired by the May payrolls report not delivering a feared-for downside surprise and news of imminent trade talks between the US and China. These discussions kicked off yesterday in London, will continue today and are centered around export curbs in tech (US) and rare earths (China). German Bunds underperformed slightly with net daily changes of no more than -2 bps at the front end of the curve. After last week’s 25 bps cut to 2%, ECB hawks are becoming a bit more vocal (Kazimir, Holzmann) but that doesn’t alter current market bets for one more late-2025 reduction to 1.75%. Trade optimism kept especially US stocks supported, with the likes of S&P 500 holding on to recent gains and trading an inch (+/- 2%) below the February record high. USD bulls stayed cautious with the greenback trading in the defensive at the start of the new week. EUR/USD rose slightly (above 1.14) to keep the short-term upward trading channel in tact. DXY holds near the recent lows in a tight sideways trading range around the 99 lever. Sterling is still going nowhere. EUR/GBP for all of June so far hovered slightly above 0.84.
•          Japan’s yen this morning briefly fell to above USD/JPY 145. Bank of Japan governor Ueda doused any market expectations for a rate hike short-term as inflation is still some distance from its inflation goal (ie achieving 2% sustainably). Asian trading otherwise is mostly inspired by the “fruitful” US-Sino trade talks. That’s pushing most stock indices into the green as well as supporting the US dollar. The overall tone for now indeed is a constructive one but predicting the outcome is impossible, including for markets. Other things to watch today while the trade topic is running in the background is tonight’s $58bn 3-year auction. This serves as a first indication for investor appetite for US bonds ahead of the more important 10-yr and especially 30-yr auctions tomorrow and Thursday. Some major market players last week declared a buyers strike for the latter. Weak sales are likely to prompt Treasury and dollar losses. The greenback avoided a test of the April EUR/USD high (1.1573) but the risk is not at all gone. Its growing more fundamental and institutional vulnerabilities are being laid bare by US administration’s decision to send marines to LA after having federalized National Guard troops to address civil unrest. That started on Friday when federal agents arrested several immigrants during a targeted operation. GBP erases early gains after this morning’s April labour market report. Wage growth was strong but slightly below expectations while the unemployment rate rose to 4.6%. The bigger-than-expected employment growth (89k vs 40k) in the three months through April was offset by a poor (but only indicative) reading for the month May (-109k).
 

News & Views

•          According to the May Survey of Consumer expectations of the Federal Reserve ban of New York, households’ inflation expectations declined at all three horizons. At the same time, consumers’ recent pessimism about the labour market eased somewhat, while consumer debt delinquency expectations and expectations about one’s household financial situation improved slightly. One-year-ahead inflation expectations declined by 0.4 ppt to 3.2%, three-year-ahead  expectations declined by 0.2 ppt  to 3.0%, and five-year-ahead expectations declined by 0.1 ppt to 2.6%. The survey’s measure of disagreement across respondents (decreased at all three horizons. Median home price growth expectations decreased by 0.3 ppt to 3.0%. This series has been moving in a narrow range between 3.0% and 3.3% since August 2023. Expectations on the labour market also improve slightly. 1-y ahead earnings growth was seen at 2.6% (+0.2%), but remains below the 12 average. Unemployment expectations also declined. The mean probability of losing one’s job  in the next 12 months decreased 0.5 ppt to 14.8% and the probability of leaving one’s Job voluntarily increased marginally.
•          The Finance Minister of Sweden, Elisabeth Svantesson, yesterday said that new military spending in the country for a couple of years (potentially four or five years) will be financed by debt. in this respect, the Fin Min said that the country will use the strength of the economy including a public debt of only just over 30% of GDP to step up defense spending. The government has the indication spend SEK 300 bln for the military over the next decade and wants to reach military spending of 3.5% of GDP in 20230. According to the Fin Min, the country will need to look for permanent financing to cover the need for military spending in the long run.
 

Graphs

German 10-y yield
 
Confidence that inflation is returning to 2% allowed the ECB to reduce to policy rate to 2.0%, 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