KBC Sunset Market Commentary 17/07/2025 via Trader Talent

KBC Sunset

Thursday, July 17, 2025

Daily Market Overview

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Markets

• (Equity) markets of late showed remarkable resilience to multiple sources of (potential) risk. Those risks were supposed to remain risks that in the end won’t materialize. This attitude in some way again dominated trading this morning. President Trump signaling that multiple (150) countries would get a letter advocating tariffs of about 10-15%, can be seen as an indication that the trade war could be settled at a sub-optimal, but manageable, level. This is also the hoped for conclusion for the outcome of pending negotiations with other majors (EU, Japan en even China). Trump added a new layer of uncertainty as he steps up efforts to dismiss Fed Chair Powell. After a spike in risk aversion yesterday, this issue for now is also shelved. Market expectations on Fed policy show remarkable stability. Any indication on tariff-related inflation is still countered by easing services inflation, making the Fed’s by default wait-and-see stance the most logical option. There even was no additional headline news on the debt sustainability issue. This ‘’volatility narrative” allows (US) stocks to hold near record levels (S&P 500 unchanged). European indices also continue to perform well given recent euro strength (Eurostoxx 50 +1.0%). In this context, today’s US data (Philly Fed survey, jobless claims, retail sales) likely would only be of short-term relevance even in case of an outcome out of line with consensus. This was exactly what happened. All three series were better than expected. Headline retail sales rose 0.6% M/M (0.1% expected), control group sales 0.5% M/M. Jobless claims dropped further to 221k (from 227k). The Philly Fed business outlook jumped to 15.9 from (-4.0 and -1.0 expected). In line with other price data this week, headline import prices (0.1%M/M; -0.2% Y/Y) were softer than expected even as the likes of consumer goods (0.4% M/M) showed tentative signs of rising. US yields initially gained modestly after the release, but currently are trading modestly lower (<3 bps). Idem for German yields. For now, the combination of solid US data, yields discounting the Fed not rushing into easing and the debate on the replacement of Powell moving to the background, supports the recent technical rebound of the dollar. DXY trades at 98.75 (from 98.35). EUR/USD declines modestly (1.1590). USD/JPY also rebounds after yesterday’s setback, but at 148.6 still trades below this week’s peak levels. The UK labour market data showed a further decline in payrolled employment in June (-41k). The unemployment rate ticked higher to 4.7%. Weekly earnings eased but stay elevated (5% from 5.4%). UK yields are gaining modestly (up to 3 bps). The report doesn’t change the trajectory of gradual further BoE easing (August/Nov) with markets currently positioned in a cautious wait-and-see bias 25 bps Nov not yet fully discounted). Sterling eases modestly against a broadly stronger dollar (Cable 1.3395). Against the euro, sterling extends its technical comeback of the 0.87 barrier.

News & Views

• The UK and Germany today signed a “Friendship and Bilateral Cooperation Treaty” in London. Both reaffirm their commitment to deepening cooperation to ensure a prosperous, secure, and sustainable future. They recognize the evolving geopolitical landscape, particularly the threat posed by Russia’s aggression in Europe, and emphasize the importance of defending democracy, human rights, and the rule of law. They aim to strengthen their partnership in areas such as security and defense, climate action, economic collaboration, technological innovation and respect for governance structures. They also highlight the importance of the UK-EU relationship and the legal frameworks that support it, and reaffirm their commitment to the Transatlantic Alliance. Separately, they drew up a list as part of an implementation plan to deliver on 17 priority projects (to be reviewed every two years). Ukraine recovery and reconstruction tops the list together with the Trinity House defense agreement.

• EU Climate Commissioner Hoekstra told Bloomberg that the €400bn crisis tool presented by the EC in yesterday’s €2tn 2028-2034 budget proposal would be funded using joint borrowing. The crisis tool would provide loans to countries to react faster to adverse events, according to sources. Hoekstra added that the mechanism would be subject to strict controls such as unanimity among the 27 EU states..