KBC Sunset Market Commentary 02/04/2025 via Trader Talent

KBC Sunset

Wednesday, April 2, 2025

Daily Market Overview

Click here to read the PDF-version of this report

Markets

• US President Trump has been keeping the market in extreme suspense the last few weeks and especially days with what he calls “the Big One”. That’s referring to a major tariff policy plan that almost certainly trumps all the levies POTUS already introduced earlier this year. The big unveil is almost there and markets are anxious to know the outcome. And yet, mere hours before “Liberation day” there are a lot of unknowns that reportedly are still being discussed as we write. Proposals floated by the media include a tiered system with a flat 10% or 20% rate for all countries as well as a more customized reciprocal plan but with unspecified tariff levels. The baseline is to “[We] charge them what they charge us” but Trump said they’ll look beyond the obvious tariff barriers that certain countries have in place to include non-tariff barriers as well. He has for example lashed out at Europe’s VAT system which he says favours domestic companies over foreign (ie US) ones. It’s also unclear what countries the Trump administration plans to target with the scope most likely broader than just countries having a trade surplus with the US. Lastly, we don’t know whether the tariffs are scheduled to kick in immediately (according to the White House press secretary Leavitt’s “understanding”) or if there’s still some time for negotiations to try to avoid them. Finally having answers, however bad they sound, could ironically bring some relief after an initial Pavlov risk off market reaction.

• Going into the announcement, markets understandably err to the side of caution regardless of solid but second-tier US data. The unofficial jobs report from ADP printed a 155k employment growth in March, picking up from 84k and beating the 120k consensus. “Despite policy uncertainty and downbeat consumers, the bottom line is this: The March topline number was a good one for the economy and employers of all sizes, if not necessarily all sectors.” ADP’s chief economist summarized. Stocks in Europe decline about 1%, Wall Street opens between 0.7-1.2%. Core bonds get a nice bid with safe haven flows pushing US Treasury yields down between 2.1-3.8 bps across the curve. The German curve bull flattens with euro area money markets pricing in the lowest end-of-year ECB policy rate (+/- 1.75%) since early February. Net daily changes amount to -0.8 to 2.8 bps. Currency markets disconnect from the typical risk aversion though with especially a lackluster dollar catching the eye. A growing stagflationary narrative has been weighing down on the greenback and tariffs are obviously not soothing any of the concerns. DXY revisits 104, EUR/USD tops 1.08(2). A strong outperformance by FX Down Under and high up north is (again) striking. EUR/SEK hits a new 2.5 year low around 10.74.

News & Views

• The Hungarian debt agency (AKK) updated its 2025 funding plan. At the end of Q1, they completed 38% (HUF 4378bn) of the planned yearly gross issuance which was raised from HUF 10 096bn to HUF 12 503bn. For the remainder of the year, AKK plans to increase institutional government auctions, while lowering the expected net financing from households. The planned volume for HGB auctions increases from HUF 4742bn to HUF 5151bn. Tenorwise, AKK wants to focus more on 5-yr bonds and less on 10-yr bonds as per investor demand. Net retail financing decreases by the same HUF 408bn, from HUF 1323bn to HUF 915bn. The average term-to-maturity of Hungarian central government debt is 5.6 years, 4.2 years in case of HUF debt and 8.7 years in case of FX debt. The FX debt share will decrease below 30% by the end of the year from 30.3% currently. AKK plans some final FX-issuance (90% already covered) later this year in the Chinese markets.

• The Czech Statistical Office announced that the government deficit decreased from 3.7% of GDP in 2023 to 2.2% of GDP in 2024. In nominal terms, the deficit amounted CZK 177.2bn. In the YoY-comparison, total revenue, of which mainly received social contributions, was increasing more (+6.8% YoY) than the expenditure (+2.9% YoY). The government debt ratio increased from 42.5% of GDP to 43.6% or CZK 3492.2bn in nominal terms.