KBC Sunrise Market Commentary 23/06/2025 via Trader Talent

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Market Commentary

Markets

•          European markets on Friday started with a cautious risk-on bias as US President Trump suggested that it could take up to two weeks for the US to decide whether to get involved in the military action against Iran. This kind of guidance of course still provided limited real visibility. The Eurostoxx 50 after a poor performance on Thursday closed 0.70% higher. US indices also opened positive after Juneteenth holiday but returned to a more cautious modus going into the weekend. (S&P 500 -0.2%). A similar reaction was visible in US yield markets. Yields initially gained a few bps but turned south later. Most Fed governors are holding the line that the Fed is in a good position the monitor the developments and decide later (e.g. Fed Daly, Barkin commenting). Fed Waller at least is a notorious exception to this rule as he is prepared to the consider a rate cut already at the July meeting. His comments at least contributed to the intraday reversal with US yields closing between 3.4 bps lower (2-y) and unchanged (30-y). Changes on the German yields were less than one bp across the curve. The dollar traded in the defensive for most of the day, but regained some momentum going into the close/weekend. (DXY close at 98.7 from 98.9, EUR/USD close 1.1523).

•          ‘Two days’ also fell within US presidents Trump’s guidance of two weeks for the US to decide on the military action against Iran. Markets now try to assess the impact and the consequences of the US airstrike against Iran nuclear sites. The market focus now in the first place in is on a the potential retaliation of Iran. This adds another layer of uncertainty for the global economy and for markets. In a first reaction in Asia this morning, equities declined slightly, Brent oil briefly surpassed $80 p/b but eased back to $78. The dollar gained (modestly). Even so, the moves are limited and orderly. This might suggest that markets consider the Iran conflict will remain regional. At the same time, for markets it also becomes ever more difficult to hedge/react to (geopolitical) event risk that might again change very soon. In this respect, this morning’s modest reaction also feels a bit like ‘paralysis’ and being unable to anticipate the next step. US yields are marginally higher this morning. The dollar struggles to maintain early gains against the euro (EUR/USD 1.1505). The yen underperforms (USD/JPY 147.2). Geopolitical headlines will continue to set the tone for trading, but we also keep an eye at the preliminary PMI releases. European PMI’s printed rather bleak last month (50.2). For now, there is at least no better visibility on the outcome of the trade negotiations or on the geopolitical context. The US measure (expected at 52.1 from 53) last month still supported the Fed’s wait-and-see approach, but weaker figures might revive the market debate on an ‘earlier’ start (cf Waller supra). We also again take notice of the fact that geopolitical uncertainty at least at this stage isn’t a big support for the dollar, which is still captured in a sell-on-upticks pattern. ECB’s Lagarde also speaks to the European Parliament this afternoon.
 

News & Views

•          Japanese June PMIs improved across the board. The composite indicator rose from 50.2 to 51.4, the highest level in four months. The manufacturing sector printed the first 50+ reading since June 2024, thanks to renewed increase in output and stock purchases as well as a slightly quicker rise in employment. Demand conditions remain muted though as new (export) orders again declined. The services sector (51.5 from 51) signaled a stronger increase in new order flow, growing employment and accumulating backlogs. Both manufacturing and services input cost inflation held close to over a year-long low but remained sharp. Charged prices showed a diverging picture with manufacturing selling prices among the softest of the past four years but those in the services sector increased at the steepest pace since January. Japanese private sector firms remained cautious on the year-ahead outlook amid lingering trade uncertainty however. The PMIs had little impact on the yen this morning, being outweighed by the geopolitical (oil) narrative. USD/JPY rises to 147.1, the highest level since mid-May.

•          Sticking in Japan, PM’s Ishiba’s ruling party (Liberal Democratic Party) suffered a major blow in local assembly elections in Tokyo. His party won a record-low 22 seats in the 127-member assembly. The setback comes ahead of the July 20 upper house elections. A sizeable loss for the LDP could further cripple the wider coalition government’s ability to govern after lower house snap elections in October last year already stripped them off their majority. A cost of living crisis (with soaring rice prices as the poster child) is cited as one of the key reasons for the poor results. Ishiba has again pledged cash handouts for every citizen ahead of the upper house elections.
 

Graphs

German 10-y yield
 
Confidence that inflation is returning to 2% allowed the ECB to reduce to policy rate to 2%, reaching neutral territory. The ECB moved 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 with market focus fluctuating between 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. LT bond yields’ trend higher on President Trump’s big, beautiful, deficit-increasing bill recently stalled again on renewed growth concerns. This market flip-flopping between the fiscal and economic theme is here to stay.

 

Calendar & table

Contacts