KBC Sunset Market Commentary 11/04/2025 via Trader Talent

KBC Sunset

Friday, April 11, 2025

Daily Market Overview

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Markets

• The US of A is in decay. The improvised hawkish trade policy which will likely end in a US recession puts US assets for sale. China doesn’t back down. They raised tariffs on all US goods from 84% to 125%, still below the US level (145%) but starting tomorrow. The Chinese government vowed to resolutely counterattack and fight to the end. In a Ministry of Finance statement, Beijing states: “Given that American goods are no longer marketable in China under the current tariff rates, if the US further raises tariffs on Chinese exports, China will disregard such measures.” They call US actions a joke. President Xi Jinping warned that one that goes against the world risks being isolated themselves. The US trade policy in any case helps thawing the relation between the EU and US, as witnessed by talk on a late July summit, the Spanish visit to China and discussions on lowering tariffs on EV’s. In the meantime, the EC by name of President von der Leyen warned to expand the trade war to US services if talks during the 90-day pause in applying reciprocal tariffs fail. US President Trump is on a mission to narrow the US’s $1.21tn goods deficit with the world, but seems to forget the $295bn surplus on the services trade balance (financial services, travel, big tech,…). Taxing those services would be a huge and damaging measure.

• It started with US equities, it spilled to long-term US Treasuries and now it arrived at the dollar. The trade-weighted dollar (DXY) lost the 2024 low (100.16) and briefly fell below the 2023 low (99.59) to test 62% retracement on the 2021-2022 USD-rally (98.98). Losing this support area would be highly significant from a technical point of view and suggest medium term full retracement to 89.21. EUR/USD already crushed this matching resistance zone (2024 top/2023 top/62% retracement at 1.1214/74/76). The pair set an intraday top at 1.1473, just below the 2022 top at 1.1495 which can be considered as intermediate resistance in the chase back to 1.2349. Apart from USD-weakness, the euro and other European assets (eg German Bunds) stand out as safe haven asset. Daily changes on the German yield curve currently range between -6.2 bps (2-yr) and -8.5 bps (30-yr). We see a different picture in the UK and the US where the very long end of the curve is again underperforming. A new Treasury sell-off is the key risk for the remainder of today’s session. The April Michigan consumer survey which grabbed market attention last months because of a huge spike in both short term (1y) and long term (5y-10y) inflation expectations only confirmed the stagflationary fears. Sentiment tumbled further (50. 8 from 57.0). At the same time 1-y inflation expectations jumped from 5.0% to 6.7%! LT expectations from 4.1% to 4.4% The US 30-y yield adds 6.0 bps and is holding near the 5.0% barrier (4.93). An uncontrolled sell-off has the potential to trigger emergency (liquidity) measures by the Fed (this weekend?) or a second Trump fold in the trade story.

News & Views

• Brazilian inflation rose 0.56% M/M and 5.48% Y/Y in March, on the higher side of the consensus expectations and compared to 1.31% M/M and 5.06% Y/Y in February. All of the nine sub-components added to the monthly rise in inflation. The biggest contributor was food prices rising by 1.17% M/M (7.68% Y/Y). Indicators of core inflation and core services inflation still suggest persistent inflationary pressures. Bloomberg estimates the average of the core inflation measures of the BCB at 0.51% M/M. Y/Y inflation also moves further above the target band of the Central bank of Brazil (3.0% +/- 1.5% tolerance). The data confirm a scenario of another further rate hike at the May 7 monetary policy meeting, even the impact of global uncertainty might enter the debate. The central bank raised the policy rate from 13.25% to 14.25% at the previous meeting on March 19.

• According to Reuters reporting and referring to domestic media and government sources, Japanese Prime minister Shigeru Ishiba today set up a task force to oversee trade talks with the US. The task force is presided by Economy Minister Akazawa. According to the local press, the Economy minister will on 17 April meet US trade representative Jamieson Greer and Treasury secretary Bessent. Akazawa indicates that US policy makers are interested in discussing non-tariff barriers but also FX policy. In this context, it won’t be easing for Japanese authorities to take action against a further rise of the yen against the USD. Aside from the negotiations with the US, Ishiba is also said have instructed his cabinet to compile an a supplementary budget as early as next week to put in place measures to respond to rising prices and to the effects of the high tariffs of the Trump administration for the Japanese economy.