KBC Sunset Market Commentary 14/08/2025 via Trader Talent

KBC Sunset

Thursday, August 14, 2025

Daily Market Overview

Dear reader,

There will be no KBC Sunset on Friday August 15. We resume the publication on Monday, August 18.

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Markets

• It’s back to the drawing board. July producer price inflation just killed this week’s market narrative. Tariff-induced inflation didn’t show up (yet) in consumer prices, but it did the more so in factory-gate prices. Both headline and core PPI rose by 0.9% M/M, beating 0.2% M/M consensus by a wide margin and sending annual PPI level respectively from 2.3% to 3.3% and from 2.6% to 3.7%; the highest levels since Q1 2025. More details showed core goods PPI rising by 0.4% M/M and services costs increasing by the most since March 2022 (1.1% M/M). The latter will feed through in the Fed’s preferred core PCE deflator and comes after core CPI earlier this week already rose somewhat more than expected. It’s the key reason by Chicago Fed Goolsbee (voter) overnight warned not to get automatically lurched into rate cuts. US money markets yesterday started contemplating for the first time the possibility of a 50 bps rate cut after Treasury Secretary Bessent’s suggestion that that should be the way forward. That door is closed now. Apart from the PPI numbers, SF Fed Daly also pushed back against such larger move as it would send a wrong, worrying, signal to the market about the strength of the labour market. The situation is different compared to a year ago when Summer payrolls reports triggered the “Sahm rule” early recession indicator (three month moving average of unemployment rate exceeding the lowest level of the past year by more than 0.5 percentage points). Currently, the Sahm metric only stands at 0.15. The US unemployment rate would have to rise by a full percentage point in August to set off similar alarm bells like last summer. Following today’s PPI numbers, it seems way less likely that markets will lean towards a 50 bps in September again even in case of disappointing activity data between now and the September FOMC meeting. Though if this week learnt something, than it’s too take nothing for granted in the current environment. Anyway, a 25 bps rate cut is the base case, with Fed Chair Powell in the position to give the nod at next week’s Kansas City Fed Jackson Hole symposium. Not ruling anything in or out will prolong the current extreme market sensitivity to US eco data with everyone eager to get the timing of the Fed’s normalization cycle right. US Treasuries underperform today with the curve bear flattening. Daily change vary between +4.9 bps (2-yr) and +1.6 bps (30-yr). German bunds shadow the move to lesser extent and in bear steepening fashion with yields currently rising by +1.3 bps (2-yr) to 2.9 bps (30-yr). The dollar finds a bid with EUR/USD returning below the 1.17 handle, currently changing hands around 1.1660. EUR/GBP today tested the neckline of a technical double top formation at 0.86. The move came somewhat counterintuitive after this morning’s Q2 GDP numbers. The headline number beat forecasts at 0.3% Q/Q (vs 0.1% consensus), but came on account of government spending (+1.2% Q/Q) with private consumption (+0.1% Q/Q) and gross fixed capital formation (-1.1% Q/Q) painting a dire picture.

News & Views

• The Norwegian central bank (Norges Bank) kept its policy rate unchanged today at 4.25%. “The job of tackling inflation has not been fully completed. A restrictive monetary policy is still needed. At the same time, we do not want to restrain the economy more than needed. In June, we began a prudent easing of monetary policy, and it will likely be appropriate to continue with a cautious normalization of the policy rate ahead,” says Governor Ida Wolden Bache. She later specified that this implies one or two more 25 bps rate cuts this year. Norwegian markets expected a slightly more firm signal for the September meeting, which helped the Norwegian krone away from the EUR/NOK 12 resistance level. The overall outlook for the Norwegian economy appears to have remained broadly unchanged since the June Monetary Policy Report. Headline inflation was slightly higher while the krone weakened a little more than assumed.