KBC Sunset Market Commentary 16/04/2025 via Trader Talent

Daily Market Overview

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Markets

•          The calm is already over. It took two days for the trade conflict to return to the front pages and dominate trading again. It started with China banning Boeing jets, followed by EU officials returning from US trade talks without progress and ended with the US imposing additional export restrictions against chipmaker Nvidia & launching a probe into critical minerals. The latter often leads to the introduction of import tariffs. It culminated into European stocks opening with losses of up to 1.6%. Sentiment later improved abruptly thanks to Bloomberg reporting that China is open for trade talks, be it on certain conditions. They want the US to show more respect, have a consistent position and express willingness to address China’s concerns around American sanctions and Taiwan. We’ll leave it up to the reader to decide whichever is the hardest. We simply stick to the fact that talks, if any, won’t happen overnight. Chinese authorities a couple of hours later struck a more defiant tone again by the way, repeating it will “fight till the end” if its interests are harmed. Stocks nevertheless saw the bright side with the EuroStoxx50 paring losses to 0.6% currently. US stocks still open between 0.4 and 1.8% lower. The US dollar once again fails to benefit from the risk off environment in growing signs of the currency losing safe haven appeal to the likes of the euro. EUR/USD wipes out yesterday’s loss to trade around 1.135. The trade-weighted dollar index returns back sub 100, near the lowest level since mid-2023. The Swiss franc is today’s G10 outperformer. EUR/CHF revisits the 2024/multiyear lows. Sterling slips against most peers but the USD after March CPI numbers this morning basically cemented another quarterly Bank of England rate cut in May (from 4.5% to 4.25%). In fixed income German Bunds again outperform US Treasuries, snapping up the haven flows. German rates ease only slightly though with net daily changes varying between 1.1 and 2.7 bps across the curve. US yields lose a few bps at the front while adding some at the long end (risk premia).
•          The economic calendar today contained strong but broadly in line with consensus US retail sales. The headline figure printed 1.4% m/m, driven by a consumer rush to cars (+5.3% m/m) ahead of a 25% import tariff. 11 out of the 13 categories posted an increase, many of them for the same aforementioned reason (eg. sporting goods, electronics …). The gauge used in private consumption calculations for GDP rose by 0.4%, slightly below the expected 0.6% but with an upward revision to February (1.3% from 1%). The publication has little effect on markets ahead of a closely watched speech by Fed chair Powell later today. For most of his colleagues (except for Waller on Monday) inflation remains the number one priority and we expect Powell to hold that line as well. It could serve as a wake-up call for markets, who currently assume around 90 bps of cuts this year.
 

News & Views

•           News agency Reuters reports that the Bank of Japan will lower its growth outlook at the May 1 policy meeting as US tariffs heighten risks to the export-reliant economy. At the previous quarterly update, the BoJ projected 1.1% growth for fiscal 2025. The extent of the expected damage could depend on the outcome of bilateral negotiations which start today and which US President Trump will join in person. In an interview, BoJ governor Ueda this morning reiterated the BoJ’s dedication to raising rates at an appropriate pace, though he admitted that a policy response (pause?) may be required depending on the economic impact. When it comes to inflation, the tariff shock is expected to delay, but not derail, progress to sustainably hitting the 2% inflation target. Today’s risk aversion prompted a test of the YTD low in USD/JPY at 142.07, but a break, which opens the path to the 2024 low (139.58) was avoided for now.
•          The World Trade Organization (WTO) updated its trade forecasts. The temporary tariff pause mitigates the trade contraction, but strong downside risks persists. Under current conditions, the volume of world merchandise trade is likely to fall by 0.2% in 2025. The decline is expected to be particularly steep in North America, where exports are forecasted to drop by 12.6%. Chinese merchandise exports are projected to rise by 4% to 9% across all regions outside North America, as trade is redirected. In a worst case scenario (full impact reciprocal tariffs and spreading trade policy uncertainty), the global goods trade could decline by 1.5%. The volume of services trade is forecasted to grow by 4% in 2025.

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