KBC Sunset Market Commentary 11/06/2025 via Trader Talent

KBC Sunset

Wednesday, June 11, 2025

Daily Market Overview

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Markets

• The framework deal agreed between the US and China overnight didn’t trigger an outsized market reaction. It is seen as confirming the trade truce reached in Geneva last month. Both countries are trying to create some goodwill, by agreeing to easing restrictions on exports of rare earths (China) or technology (US). Still, scant communication post the meeting also indicates that the heavy lifting of an in depth agreement on trade and tariffs between the two countries still has to be done. Equity indices in Europe and US futures trade little changed to even marginally lower as markets headed into the US CPI release to be published at the start of US dealings. Yields in Europe and the US at that point added 2-4 bps across the curve.
• US May inflation printed softer than expected at 0.1% M/M and 2.4%Y/Y (from 2.3%) for the headline and 0.1% M/M and 2.8% Y/Y (unch.) for the core measure. Energy prices declined 1.0% M/M. Services increased a mild 0.2% M/M (3.7% Y/Y). Goods prices excluding food and energy were unchanged M/M suggesting that, for now, there is only limited pass-through of (potentially) higher tariffs. Evidently, importers still are in some kind of interim period with the final impact of tariffs still highly uncertain. This uncertainty also applies to the Fed assessment, with the US central bank for now not committing to further easing as long as activity and the labour market are holding up well. Even so, the CPI report triggered a bull steepening of the US curve with yields easing between 6 bps (2-y) and 1 bp (30-y). Markets now are again discounting 50 bps of cumulative Fed rate cuts by EoY. German yields are off the intraday top levels on spill-overs from the US and are trade between unchanged (2-y) and +3.0 bps (30-y). The ECB wage tracker ‘predicts’ wage growth in Q4 to slow to 1.7% Y/Y (1.6% in April and compares to 5.4% Y/Y in Q4 2024). Average growth for 2025 is seen at 3.1%. The market reaction to the report was limited. After some consolidation over the previous days, the loss of interest rate support again pressures the dollar. EUR/USD (1.146 area) is closing in on last week’s top (1.1495) with the YTD top (1.1573) looming on the horizon. UK Chancellor of the Exchequer Reeves proposing new spending plans focused on health care, housing and defense (but at the same time testing the limits of fiscal credibility) don’t help sterling. EUR/GBP extends yesterday’s rebound to trade near 0.848.

News & Views

• Hungarian inflation unexpectedly rose by 0.2% m/m to be up 4.4% Y/Y in MAY. Core inflation eased to 5% from 4.8% y/y but remains above the central bank’s 3% +/- 1 ppt target. Food prices (included those of processed food) accelerated again despite the profit margin caps the government introduced earlier this year and recently extended through September (and probably all the way through next year’s spring parliamentary elections). Tradeable goods prices rose faster in yearly terms as well but the disinflation in market services continued. The latter could be related to government pressure. Other major moves included a 2.2% increase in gas prices compensating a 1.9% drop in oil. Base effects could push headline inflation lower through July before fluctuating in a 3.7-4.2% range for the remainder of 2025H2, according to KBC Economics. Risks stay tilted to the upside (wages, fiscal loosening, rising domestic demand). A central bank rate cut (if any) from the 6.5% currently remains a distant prospect in these circumstances, especially since it risks pressuring the Hungarian forint again. The HUF recently performed strong though, with EUR/HUF after today’s CPI data testing the 400 barrier for the first time since Liberation Day.
• The ECB in its annual review of the international role of the euro found that the share of the common currency in global official foreign exchange reserves remained broadly stable at constant exchange rates, hovering at around 20%. The share of the US dollar declined by 2.0 pts to 57.8%. The ECB said that “these developments align with long-term trends that started in the last decade”. By the end of 2024 the share of currencies other than the USD and the euro had risen to 22.4%, driven by strong gains in non-traditional reserve currencies, including the Loonie and Aussie dollar. The share of gold in total official foreign reserves – comprising foreign exchange and gold holdings – increased to 20% at the end of 2024, surpassing that of euro (16%), on the back of historically high gold prices (around 30% higher in nominal terms) and big purchases, the review noted. The ECB found that central bank increased their gold stock by more than 1000 tonnes of gold last year, which is double the level seen in the previous decade. Central banks worldwide now hold almost as much gold as they did in 1965 during the Bretton Woods era.