KBC Sunset Market Commentary 10/03/2025 via Trader Talent

KBC Sunset

Monday, March 10, 2025

Daily Market Overview

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Markets

• Odds this morning were for markets to take a slow start to the new trading week after last week’s sharp (divergent) repositioning on both sides of the Atlantic. Fed Chair Powell on Friday in a ‘last-minute’ assessment before the black-out period in the run-up to the March 19 Fed meeting, kept a wait-and-see-approach. Powell still sees the US economy as holding fairly robust and doesn’t get carried away by a limited number of (perceived) weaker than expected data. Maybe there was room for US yields to look for a bottom after markets raised Fed rate cut bets to a cumulative 75 bps this year from just one 25 bps step about one month ago. Still, with little in the way of hard US eco or political news, US markets today still are governed by the forces of gravity with yields, US equities and even the dollar printing in red. Recessionary fears don’t subside. US yields again are declining up to 10 bps (5-y) with the belly outperforming the wings. Recent lows (3.84% 2-y; 4.10% 10-y) are surviving, but stay within reach. Markets clearly aren’t convinced that the US economy is only going through a transition period as president Trump indicated in a Fox interview this weekend. US equities also are again ceding up to 3.0%+ (Nasdaq). The US tech index is (at risk of) falling below the 17817 level (23% retracement 2022/2024 upleg), a genuine technical warning. German yields are slightly off last week’s peak levels after the country made a U-turn to an outright defensive-driven fiscal stimulus. The German Green Party, which doesn’t take part in the CDU/CSU-SPD talks to form a government but is necessary to approve the constitutional amendment of the debt brake, today indicated that it rejects the spending package from the ‘upcoming’ coalition. The Greens want a ‘real’ reform of the debt break. The new collation partners and the Greens are said to hold talks later today. Maybe, the ‘risk’ is for the additional priorities of the Green party to be included in the ‘debt-brake package’. German bunds clearly underperform US Treasuries with yields easing between 4.0 bps (5-y) and 1.0 bps (30-y). The Eurostoxx 50 is ‘only’ losing about 1.5 %. As was the case of late, the dollar clearly isn’t able to reclaim its (previous) safe haven status. DXY declines marginally (103.82). EUR/USD is holding last week’s gain (1.0835). The yen continues its outperformance with USD/JPY drifting below the 147 big figure. Brent oil still struggles near $70 p/b.

News & Views

• The German seasonally-adjusted trade surplus declined from €20.7bn in December to €16bn in January. German exports fell by 2.5% M/M to €129.2bn (-0.1% Y/Y) with imports rising by 1.2% M/M to €113.1bn (+8.7% Y/Y). Exports of goods to countries outside of the EU amounted to €59.4bn, most of which was sent to the US (-4.2% M/M to €13bn). Imports from the US rose by 6.5% M/M to €8bn. Most imports from outside the EU came from China (-2.8% M/M to €12.9bn vs €6.7bn exports to China). Other data series showed German industrial production rising by 2% M/M in January, to be down 1.6% Y/Y. The strong start to the year erased a weak ending with the less volatile 3M/3M comparison showing the production in the period from November 2024 to January 2025 was at the level of the previous three months (0.0%). Significant production growth in the automotive sector together with increases in the food industry and in machine maintenance and assembly outweighed lower production in the manufacture of fabricated metal products. Core industrial production, excluding energy and construction was up 2.6% M/M with intermediate goods production rising by 3.3%. The production data need to be combined with a staggering 7% drop in January factory orders, published last week and a 2.5% M/M decrease in the truck toll mileage index for February (to 93.2, the second lowest level since the pandemic). It’s a combination of frontrunning tariffs and pre-election uncertainty. Last week’s events suggests that the German industrial sector could be ready for a debt-funded revival.

• Norwegian inflation outpaced expectations in February, rising by 1.4% M/M (vs 0.5% expected) to 3.6% Y/Y (vs 2.6% and from 2.3%). Underlying core inflation beat consensus by a wide margin as well, accelerating to 1% M/M and 3.4% Y/Y. Elevated price pressure is a setback for the Norges Bank who prepared markets for a first policy rate cut later this month. Norwegian money market believe that a pullback is possible, discounting only 50% probability to such action with only 1 full rate cut discounted by the end of the year compared with Norges Bank guidance of three such moves. The Norwegian krone roars back today with EUR/NOK dropping from 11.80 to 11.67 and on its way to test the strong EUR/NOK 11.52/60 support zone.