KBC Sunset Market Commentary 15/07/2025 via Trader Talent

KBC Sunset

Tuesday, July 15, 2025

Daily Market Overview

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Markets

• This morning, it initially looked that risk premia at the ultra-long end of the yield curve could remain the focus for markets. The Japanese 10-y yield tested the cycle /YTD top levels near 1.6%. The 30-y yield even touched an all-time top near 3.21%. However, this time were no spillovers to markets outside Japan. Markets shifted into wait-and-see modus ahead of the US CPI data. German ZEW economic confidence improved more than expected, both for the measure on the current situation (-59.5 from -72.0) and the expectations series (52.7 from 47.5). The indicator had little impact on trading. Even so, equity resilience suggests a similar attitude (slight gains for Eurostoxx 50 and US equities) with investors staying hopeful on a reasonable outcome of the trade negotiations.

• The eagerly awaited June US CPI report wasn’t able to given any clear directional guidance. At 0.3% M/M and 2.7% Y/Y and 0.2%/2.9% Y/Y for core inflation (ex food and energy) the report was very close to expectations. A rise in prices of apparel (0.4%) and some household furnishings and equipment might be indication of some pass-through of higher costs, but its too early to draw any firm conclusions. Vehicle prices declined again. Services prices ex energy rose 0.3%. Shelter price inflation was a modest 0.2%. If anything, the conclusion might be that it takes time for tariffs to move the overall picture on inflation, also as those items only have a rather limited weight in the inflation basket compared to e.g. services. US short-term yields briefly dipped after the release but most of this move was quickly undone. US yields are trading +2.5 bps (2-y) and -1.0 bps lower (30-y). Already this morning, German/EMU curves bull flattened and this move was maintained after the US CPI release. The German 2-y yields trades little changed (2-y). The 30-y declines 5.5 bps. Both the price action in the US and even more in the German yield curve suggest this a correction on recent steepening as LT yields were closing in on high profile levels, rather than a reaction to CPI. Hardly any USD reaction to the CPI data. The DXY trade-weighted (98.1) index lost marginal ground after the CPI release, but the move didn’t continue. EUR/USD drifts lower to 1.165. The yen still underperforms with USD/JPY at 148.5 and EUR/JPY 172.8, touching the highest level since July last year. EUR/GBP this morning just didn’t touch the 0.87 barrier, currently trading near 0.8675. Tomorrow, the UK June CPI data will be published with the labour market data to be released on Thursday. This evening markets also will keep a close at the Mansion House speech of Bailey. Markets look out whether the BoE governor will again shift the focus to sub-trend growth and easing of labour market conditions, suggesting more room for the BoE to cut rates later this year.

News & Views

• Canadian inflation slowed to 0.1% m/m in June from 0.6% in May. That was nevertheless enough to lift the 1.7% y/y reading to 1.9%. The core measures watched closely by the Bank of Canada (trimmed, mean) ranged between 3% and 3.1% y/y while the common core gauge (CPI ex food and energy) came in at 2.6%. These latter gauges have been going nowhere for the last three months (since April) now. That’s unlikely to sooth the central bank let alone to convince it to cut rates further from the current 2.75% (in place since March). The BoC in its latest policy meeting (June 4) and referring back then to April data, specifically mentioned the uptick in core inflation and added that households continue to expect tariffs will raise prices while businesses plan to pass on those costs. US President Trump threatened Canada with a 35% in one of his tariff letters last week. The Canadian Loonie strengthens slightly against an overall weaker USD today. USD/CAD drops to 1.367. Canadian government bond yields trade little changed across the curve.

• OPEC in its monthly report said that the global economy may perform better than expected in the latter half of the year despite the rumbling trade conflicts. Shorter term and going over the summer months, refineries’ crude intake would remain elevated, helping support the demand outlook. The robust outlook meant the oil cartel made no changes to its global oil demand growth for 2025 and 2026 after reductions in April. The OPEC analysis came after the IEA trimmed its demand forecast last week but later said that the market may be tighter than it appears. Brent oil prices trade little changed today around $69.3/b.