KBC Sunset Market Commentary 14/05/2025 via Trader Talent

KBC Sunset

Wednesday, May 14, 2025

Daily Market Overview

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Markets

• There were hardly any data with market moving potential and for now no trade-related headlines from US president Trump to guide trading today. European equities are taking a breather after the recent rebound (EuroStoxx 50 -0.1%). US indices open marginally higher after yesterday’s (tech) rebound on president Trump’s announcement of several eye-catching contracts in the Middle East. Core bond markets were mainly mired on technical trading. The US curve steepens slightly with yields adding between 0.5 bps (2-y) and 3.2 bps (30-y). German bunds slightly outperform Treasuries, with yields easing about 1.0 bp across the curve. Fortunately, FX markets at least provided a bit more of animateness. The dollar at the end of the Asian trading dropped in an otherwise calm market. The move was triggered by comments on financial news wires (Bloomberg) referring to people familiar with the trade talks between the US and South Korea earlier this month saying they also discussed FX policies. This caused markets to ponder whether an outright weaker dollar might also get more weight in trade talks with other trading partners. For now there is no official reaction to the reports. Even so, the SK won after tentatively easing this morning currently trades more than 1% stronger in a daily perspective. The move also spilled over the yen. USD/JPY currently trades near 146.25, off the intraday lows, but to be compared with an intraday top of 147.67 early in Asian dealings. The euro is also captured by this overall USD setback, but underperforms the likes of the yen. EUR/USD regained the 1.12 mark but struggles to make further progress (1.1215). EUR/JPY yesterday intraday at 165.1 came with reach of the 166.7 end October top, but today eases to 164.15. Even as US trade negotiations with the EU are rumored to have made little progress for now, the topic of a too weak currency likely is more of an issue for Asian currencies rather than for the EU (only Germany is on the monitoring list of the US Treasury Department). As indicated above, the move today was mainly limited to FX markets and it is not evident for officials from the countries involved in trade talks to openly comment on this topic. Also from a US point of view, there are risks to openly push for a weaker USD as it might revive the sell US trade that was a source of elevated market volatility last month. In this respect, we keep still also keep an eye at the very long end of the US curve. The US 30-y yield is again within reach of the 5.0% barrier (4.94%). The latest rebound in US yields mainly was for a ‘good reason’ (reflation on a de-escalation in trade tensions). However, LT US yields surpassing 5.0% (whether due a risk of USD weakness, due to doubts or fiscal sustainability or whatever other reason) soon might tilt to becoming a renewed source of (global) uncertainty.

News & Views

• The Kingdom of Belgium launched a new 5-yr bond via syndication today. OLO 105 (Oct2030) was prices to yield MS +28 bps, compared with guidance in the MS +30 bps area; allowing the debt agency to raise €7bn with books above €72bn. The BDA now raised €27.6bn of its €42bn 2025 OLO funding need (65.5%). The lion share came from syndicated deals following a new long 10-yr (€7bn OLO103 3.1% Jun2035) and a long 15-yr (€5bn OLO 104 3.45% Jun2042) earlier this year. They also raised $1bn via a 10-yr USD benchmark within the framework of the EMTN programme. If the debt agency sticks to its funding plan, this was the final new OLO of the year with the remainder of the funding need to be raised via regular monthly auctions. The May auction is cancelled, leaving five more on the calendar (no planned in August). The means an average of €2.88bn to be raised at each occasion which is in line with traditional targeted amounts (€3bn area).
• National Bank of Poland Kochalski sees a pretty good change of a decision on rate cuts in July. His base case is a 25 bps cut, but he doesn’t rule out copying this month’s 50 bps move. Overall, he sees scope for 50-75 bps of easing by end 2025. Yesterday, NBP Janczyk suggested a preference to a 50 bps rate cut somewhere this year if inflation and wage growth stay soft. In the short run, attention shifts to Polish presidential elections. The Polish president is more than a ceremonial function with the current president, linked to the previous Law and Justice party, complicating PM Tusk’s policy making. The latter’s candidate (Trzaskowski) is expected to come out on top in Sunday’s first round of voting with a second round run-off against the PiS-candidate (Nawrocki) expected on June 1st. Polls also favour Trzaskowski over Nawrocki in that tie. EUR/PLN holds steady around 4.24 after the zloty recovered partly from April losses thanks to the risk rebound.