KBC Sunset Market Commentary 19/08/2025 via Trader Talent

KBC Sunset

Tuesday, August 19, 2025

Daily Market Overview

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Markets

• This morning’s mediocre Japanese 20-y government bond auction and yesterday’s meeting in the White House on Ukraine were potential drivers for any directional market action today. Quod non. Japanese yields in the 10-y+ sector closed up to 4 bps higher, but the signal this time wasn’t picked up by markets outside the country. US, EMU and UK yields currently are changing less than 2 bps across the curve in a daily perspective. Match null for now as bond investors are cautious to place strong directional bets in the run-up to Fed Chair Powells’ Jackson Hole address on Friday. Still, especially the German (3.34%) and UK 30-y yields (5.60%) are challenging multi-year peak levels. For now, market moves also in this segment of the curve remain orderly, but fiscal sustainability clearly remains a market concern as governments are preparing 2026 budget plans. In the UK, this budgetary exercise is additionally complicated by a near stagflationary context. In this respect, UK Fin Min Reeves for sure also will keep a close eye at the July UK inflation data scheduled for release tomorrow morning as the rising cost of inflation-linked notes is an important variable in UK budget calculations. Sterling traders at least take a cautious approach going into the release. The UK currency is ceding (modest) ground against the single currency, with EUR/GBP trading further off the 0.86 support area (0.8645). On broader FX markets, the dollar mostly trades marginally softer, but with absolutely no technical implications (DXY, 98.1, EUR/USD 1.168, USD/JPY 147.75). Powell apparently also ‘paralyses’ this market. Hope on potential progress regarding the conflict in Ukraine caused a better bid for most CE currencies with the forint outperforming. At EUR/HUF 393.9, the Hungarian currency is touching its best level against the euro since September last year. Gains in the likes of the zloty (EUR/PLN 4.245) and the Czech koruna (EUR/CZK 24.45) are more modest. On equity markets, the Eurostoxx 50 (+0.9%) trades less than 2% below the early March top. In the US, the S&P 500 opens little changed, but (Friday’s) all-time top is also at less than 1%.

News & Views

• The International Exchange Inc (ICE) released its Annual Fixed Income Index Rule Review. It again rejected a proposal to add joint EU debt to sovereign bond indices following consultations with stakeholders. The EU is currently categorized as a supranational, which is seen as a reason why its debt is trading at a discount compared with European government bonds with similar rating. ICE said that there is “no development towards consensus” on the inclusion topic since last year with some arguing that the bloc does not meet the “common understanding of sovereign”. MSCI , S&P Global and Bloomberg Index Services have also turned down similar proposals, though it’s possible they will revisit the question. The EU is working on professionalizing the EU bond market given the issuance boom in the wake of the Covid-pandemic. This includes improving liquidity by creating a repo facility and enticing banks for better pricing and efforts to create a futures market. Inclusion in sovereign bond indices would also help creating the appeal of a European safe haven asset comparable to US Treasuries.

• Canadian headline inflation accelerate to 0.3% M/M in July with the headline number slowing from 1.9% Y/Y to 1.7% Y/Y, matching the second lowest pace since February 2021. Prices for gasoline led the headline slowdown, falling by 16.1% Y/Y (-0.7% M/M). Excluding energy, CPI stabilized at 2.5% Y/Y, the same pace as in May and June. Shelter price rose by 3% Y/Y (from 2.9%) in a first acceleration since February 2024. Rent prices also accelerated, from 4.7% Y/Y to 5.1% Y/Y. One of the Bank of Canada’s preferred CPI measures, the trimmed mean of core inflation which excludes the most volatile components, stabilized at 3% Y/Y. The Canadian dollar swap curve shows some modest bull steepening in the wake of the figures with front end yields around 2.5 bps lower. The Loonie trades a tad softer at 1.3840. Gains are technically insignificant with first resistance at USD/CAD 1.3879.