KBC Sunset Market Commentary 15/05/2025 via Trader Talent

KBC Sunset

Thursday, May 15, 2025

Daily Market Overview

Click here to read the PDF-version of this report

Markets

• Asian currencies remained among the best performers today. They still thrive on yesterday’s rumours of the US and South Korean having talked about FX policy even though sources later denied the news. Similar speculation of local governments ready and willing to beef up their currency as a bargaining chip in trade talks with the US was the reason Asian currencies in early May ripped higher as well. The story back then centered around the Taiwan dollar though. The SK won strengthens sub USD/KRW 1400 while the Japanese yen moves from USD/JPY 146.75 to 146.1 in a three-day winning streak. Moves in other USD pairs remain very limited and insignificant from a technical point of view. EUR/USD oscillated in a tight sideways trading range around 1.12, the trade-weighted index treaded water just north of 100. Core bonds gain ground with the front outperforming the long end of the curve. German yields drop 4 (30-yr) to 6 bps (2-yr) in a consistent move lower throughout the day. US yields lose up to 6 bps in the 2-yr yield, triggering a test and break of the recently conquered 4% barrier again. The long end of the curve, the 30-yr in particular, suddenly spiked towards the symbolically important 5% before attracting buyers and paring gains again as a result. The moves both at the front and long end coincided with the publication of some US economic data but we wouldn’t draw too many conclusions from them. Especially with respect for long-term bond yields, which we think are more driven by the comeback of fiscal sustainability as a market theme, heralded by Monday’s release of the House reconciliation bill details and yesterday’s dire CRFB deficit-impact calculations. US April retail sales came in to the low end of expectations but saw the March reading revised higher across all gauges. Headline sales last month rose by 0.1% m/m as 5 rising categories made up for the 8 categories printing a drop. A core measure excluding car and gas printed 0.2% growth. The control group series used in GDP calculations unexpectedly declined by 0.2%. PPI numbers for April were a similar story: a sub-consensus outcome offset by upward adjustments for March. Weekly jobless claims remained low (229k) and some confidence indicators for May, including the Empire Manufacturing (-9.2 from -8.1) and Philly Fed Business Outlook (-4 from -26.4) were a mixed bag. The US equity market rally, supported a.o. by Trump’s deal-making tour in the Middle East, is catching a breather with a slightly lower open. Oil in commodity markets faced some selling pressure after the US president said the US and Iran were getting closer to a nuclear deal which could pave the way for a (partial) return of Iranian oil on broader global markets.

News & Views

• The International Energy Agency projects global oil demand to slow for the remainder of the year as economic headwinds and record EV sales curb use. In their monthly oil market report, they forecast demand growth averages of 740k b/d in 2025 and 750k b/d in 2026. Those estimates nevertheless are an upward revision from respectively 726k and 692k b/d. World oil supply looks on track to rise by 1.6m b/d on average this year and by an additional 970k b/d in 2026 (from 1.2m & 960k estimates previously). Amid the weaker outlook for the world economy and global oil demand, OPEC+ surprised the market in early May by announcing a second consecutive monthly increase of 411k b/d for June. With the rises in global supply expected to considerably outpace demand growth, oil inventories are forecast to jump by an average of 720k b/d this year and 930k b/d next year, compared with a decline of 140k b/d in 2024. Oil prices are under downward pressure since early “Liberation Day” (April 2) on supply/demand dynamics. One of the most immediate impacts of the recent slump in oil prices is expected to fall on US shale output with independent producers opting to trim rig counts end lower capex plans.

• Flash Q1 GDP estimates in Poland and in Switzerland both beat consensus. Polish economic growth slowed from 1.4% Q/Q in Q4 to 0.7% while markets feared a slowdown to just 0.1%. Y/Y broadly stabilized at 3.2% (from 3.4%). Details will follow on June 2nd. Preliminary Swiss (sport event adjuster) Q1 GDP accelerated from 0.5% Q/Q to 0.7% (vs 0.4% expected). The State Secretariat for Economic Affairs that growth was driven significantly by the services sector with industry also showing overall expansion. Detailed numbers for both countries will be available on June 2nd.