KBC Sunset Market Commentary 01/08/2025 via Trader Talent

KBC Sunset

Friday, August 1, 2025

Daily Market Overview

Dear reader,

there will be no KBC Sunset from Monday, August 4 until Monday, August 11. We resume the publication Tuesday, August 12.

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Markets

• Dubbed “Liberation Day 2.0”, US president Trump’s adjusted tariffs now the August 1 deadline has lapsed had by far the largest negative impact on equity markets. Asian stocks withstood the long list of unilateral tariffs relatively well but European equities have a much harder time. The EuroStoxx50 slumps >2%, adding to yesterday’s -1.3%. Trump maintained a 10% minimum rate, applicable to countries with a trade deficit with the US (yes, you read that right) while those with a limited trade surplus face 15% (about 40 countries). Countries without a trade agreement or higher surpluses would pay a sometimes significantly higher rate. Switzerland (39%) serves as a case in point. The new rates kick in on August 7 and need yet to be complemented by any sectoral tariffs (pharma, semiconductors, rare metals …). FI and FX markets trade surprisingly resilient. We’re not seeing any safe haven flows to German Bunds, on the contrary: yields rise between 0.7 (bps) to 5.4 (30-yr) bps. US rates eke out up to 2.6 bps. Wednesday’s two dissenters simultaneously hit the wires today, repeating their calls for cuts. Waller said the Fed shouldn’t wait for the labour market to deteriorate while Bowman said slowing growth allows for gradual rate reductions. The USD has a minor upper hand against most G10 peers but its within the margin of error as markets hold the sidelines going into the July Labour market report. EUR/USD hovers around the 1.14 barrier. The trade-weighted dollar index extends this week strong rally to beyond 100. GBP trades in the defensive, allowing EUR/GBP to rebound for a second day straight back to the 0.866 area. The Swiss franc obviously underperforms peers. EUR/CHF jumps north of 0.93.
• Enter the payrolls to completely wipe out the pre-labour market picture. July employment was a meagre 73k, falling short of an already low bar of 104k. The previous two months faced a significant cumulative downward revision of 258k, meaning there was barely any employment growth in May (19k) and June (14k). That brings the 3mMA to the lowest since 2010 (35k). A 96k job increase in the services sector (private education & health) compensated an 11k drop in manufacturing and a 12k drop in the government sector. The unemployment rate ticked higher as expected, to 4.2%. That’s still low but it’s despite the participation rate easing to 62.2%. Wages grew largely in line with expectations (0.3% m/m and 3.9%). The market reaction is textbook: front end US yield curves tank up to 21 bps as markets ramp up Fed easing bets again just after the central bank told they won’t just yet. A September cut is priced in for 85% vs 40% pre-payrolls. If future labour market reports confirm the weakening state, we wouldn’t rule out the Fed going big in its opener, similar to last year. Longer maturities drop 8-13 bps too. German yields swap gains for losses in sympathy. The greenback takes a sucker punch, ending in what otherwise have been a stellar week with a downer. EUR/USD shoots up from <1.14 to 1.156 currently. DXY nosedives back towards 99.4 and USD/JPY returns to 149.04. Wall Street opens more than 1% lower but the majority of (futures) losses were already prior to the release. The US manufacturing ISM is still scheduled for release after the wrap-up of this report.

News & Views

• The IMF’s executive board approved a $2bn disbursement to Argentina after concluding its first review of the country’s $20bn deal with the Washington-based institution. The approval is seen as a sign of confidence in president Milei and his government since it missed a key mid-June target for building up its net international reserves at the central bank. With the approval, total IMF financing for Argentina adds up to $14bn after an initial and upfront release of an unusually large $12bn chunk. IMF director Georgieva said Milei’s economic program is off to a “strong start” and said that “Exchange rate flexibility should be preserved, while sustained efforts continue to rebuild reserves buffer” in being critical for Argentina to better manage shocks and have durable access to international capital markets.