KBC Sunset Market Commentary 07/03/2025 via Trader Talent

KBC Sunset

Friday, March 7, 2025

Daily Market Overview

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Markets

• US February payrolls and Chair Powell’s after-European-close speech wrap up a hectic week. The former showed US employment growing by 151k, more or less in line with the expected 160k. January was revised down a bit by 18k. The goods sector added 34k, services 106k, led by the health & social sector (63k) and finance (21k), offset by leisure & hospitality (-16k) and temporary help (-6k). DOGE’s work started showed up in the federal government sector, which has shed 10k jobs. It’s the biggest monthly decline since July 2022. The household survey brought a slightly different message, with employment actually dropping. This helps explain why the unemployment rate (calculated from this survey) unexpectedly picked up from 4% to 4.1% even as the labour force participation dropped as well (62.4%). Hourly wage growth rose the expected 0.3% m/m to come in at 4% on a yearly basis. January’s figures were slightly adjusted downwards. We’d label today’s report as decent and in any case close to expectations.

• It makes the market reaction all the more telling. Markets took the soft view and with it reveal ongoing sensitivity for weaker economic data. We think the genie, set free by president Trump’s chaotic policy and DOGE-sparked fears, will be hard to put back in the bottle. US Treasury yields extended previous losses to change -4 to -7 bps on a daily basis at some point, before paring them again to pre-payrolls levels as US investors joined. The dollar is down for the day but the bulk of the declines happened before the payrolls release. DXY is near the November correction low (103.37) EUR/USD did try a first shy attempt for 1.09 shortly after the publication though, but it lacked strong enough momentum. It’s given another chance later today when Powell seizes the final opportunity to speech before the black-out period kicks in ahead of the Fed meeting March 19. Another rate status quo then is all but certain. But markets have dramatically shifted the timeline over the past couple of weeks: from a first new rate cut in September somewhere mid-February towards one fully priced in for June and already 50% for May today. Stressing the recent weaker than expected economic data and/or putting the spotlights on downside growth risks could prompt more aggressive bets. Next week brings some of the final input for that March FOMC meeting with JOLTS job openings on Tuesday, CPI figures on Wednesday and a closely watched consumer confidence indicator on Friday. On the tariff front, Wednesday is an important date with March 12 being the US deadline to impose 25% steel and aluminum tariffs on the EU. “The ECB and Its Watchers” conference kicks off the same day. Friday poses another US deadline. Lawmakers need to strike a spending deal in order to avoid a federal government shutdown.

News & Views

• Czech nominal wage growth beat both market and Czech National Bank (7%) expectations yesterday, rising by 7.2% Y/Y in Q4. From the CNB's perspective, wage development is a reason for caution, especially given that wage growth in the private sector surprised on the upside (+8.3% vs. the CNB's staff forecast of 7.6%). In our view, this development increases the chances that the CNB will choose to pause again its cutting cycle at the March meeting, i.e. our baseline scenario, with a next cut in official interest rates to be delivered at the May meeting. The Czech koruna failed to take a new aim at EUR/CZK 25 with current euro momentum on the back of fiscal-driven growth prospects overturning such move.

• Canadian employment was virtually unchanged in February with the economy adding 1.1k jobs. Consensus hoped on a stronger, 20k, net job creation. Details moreover showed gains in part-time employment (+20.8k) compensating for losses in full-time occupations (-19.7k). Employment increased in wholesale and retail trade (+51k) as well as finance, insurance, real estate, rental and leasing (+16k). There were declines in professional, scientific and technical services (-33k) and transportation and warehousing (-23k). Both employment (61.1%) and unemployment rate (6.6%) held steady. The latter occurred against a drop in the labour force participation rate from 65.5% to 65.3%. Average hourly wage growth accelerated from 3.5% Y/Y in January to 3.8%. The Loonie extends this week’s roller-coaster ride against the US dollar caused by the on-off tariff announcements by the US. The combination of good US payrolls and weaker Canadian ones, lifts USD/CAD from 1.4290 to 1.4360.