KBC Sunrise Market Commentary 24/06/2025 via Trader Talent

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Market Commentary

Markets

•          Markets yesterday felt some kind of ‘four seasons in one day experience’ with market themes/focus constantly switching throughout the day. A mild initial reaction after the weekend US air strike on Iran nuclear facilities, a growing risk-off feeling intraday, largely ignored EMU and US PMI’s and some Fed governors (Bowman, Goolsbee) fueling the debate on a July rate cut if the pass-through of tariffs costs remains limited. Later during US trading hours, markets gradually came to understand that the tensions in the Israel-US-Iran conflict might be cooling. Iranian retaliations in the form of an attack on a US military base in Qatar was limited and said to be well preannounced. Later after the close of US markets, US president Trump announced that a ceasefire between Israel and Iran had been agreed. The prospect of easing tensions caused the oil price to fall off a cliff with Brent currently trading near $70 p/b compared to levels near $80 yesterday. (US) equities, admittedly with a temporary setback, gained traction as the US trading proceeded, supported by more benign headlines from the Middle East, but also by interest rate markets taking notice of the July rate comments from Goolsbee and Bowman.  The S&P closed 0.96 % in green. US yields at the end of the session eased between 4.5 bps (2-y) and 1.5 bps (30-y). Despite recent guarded ‘guidance’ from Fed Chair Powell, a 25 bps cut at the September meeting is now again almost fully discounted. German yields were little changed (about 1 bp across the curve) as the EMU PMI’s confirmed a lackluster growth performance and mixed inflation picture. Also quite an impressive intraday reversal in FX markets. The dollar outperformed on high oil prices and geopolitical uncertainty during the European session, but made a sharp U-turn initially triggered by the debate on a July Fed rate cut and accelerated by easing geopolitical tensions and the sharp drop in the oil price. DXY touched 99.40 intraday but closed at 98.41. EUR/USD rebounded from the 1.1455 area to finish the day at 1.1578. USD/JPY in a similar move tumbled from the 148 area to close at 146.15. Most smaller currency (AUD, NZD,….) facing strong headwinds intraday also reversed most/all intra-day losses.

•             Asian markets this morning evidently are in an outright risk-on modus after the announcement of ceasefire in the Middle East. Most indices are up between 1% and 2.0%. The dollar is losing further ground with EUR/USD regaining the 1.16 mark. In a first instance, the focus well remain on the sustainability of the Isael-Iran ‘ceasefire’. However, if it holds, other themes (Fed policy , US budget, trade) soon will return to the forefront. Regarding the data, US consumer confidence of the Conference board is worth looking at. However, even more attention will go to Fed Powell’s semi-annual appearance before House financial Committee. We assume that Bowman and Goolsbee were among the softer dots in a highly dispersed ‘forecast’ in last week’s SEP. Even so, any indication of the Fed Chair giving more weight to soft labour market tendencies and/or milder CPI risks, won’t go unnoticed at the short end of the US yield curve and might weigh further on the dollar. DXY (98.05) is nearing the YTD low (97.60). EUR/USD (1.1603) is only a whisker away from the 1.1631 top.

News & Views

•          The EU yesterday released its funding plan for the second half of this year. The EC intends to issue €70bn of EU bonds via 4 syndications (focus on 5y, 7y, 15y and 30y) and 6 regular bond auctions. That’s less than the €90bn targeted between January and June, but €5bn more than H2 2024. NextGenerationEU Green Bond issuances will take place via tapping of existing bonds to support the liquidity of these lines before launching a new line. As of autumn (exact date to be confirmed) the EC will implement a non-competitive auction allocation to EU primary dealers allowing for the allocation of additional amounts of auctioned bonds (20% of initially allocated auction volume) the day following the bond auction. The EC will also continue to issue EU-Bills (3m, 6m and 12m).

•          French President Macron and German Chancellor Merz published an op-ed in the Financial Times ahead of this week’s NATO Summit labeled “Europe must arm itself in an unstable world”. France and Germany will reaffirm their support for US efforts to bring an end to the Russian war in Ukraine. But shouldering responsibilities goes beyond Ukraine. France and Germany will aim to reach 3.5% of GDP in defense spending and 1.5% in broader expenses contributing to the defense effort in order to strengthen the European pillar of NATO. Nuclear deterrence will remain the cornerstone of the alliance’s security. Leaders also eye a reform of procurement systems by applying the “three S’s”: standardization, simplification and scale.
 

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