KBC Sunset Market Commentary 20/02/2025 via Trader Talent

KBC Sunset

Thursday, February 20, 2025

Daily Market Overview

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Markets

• US Treasury Secretary Bessent said in an interview with Bloomberg Television that the Treasury team under the previous president had shortened the duration in Treasury sales. While he’s not shortening any further, the US Treasury is also a long way off in terming out the debt. He noted that elevated inflation and competition by the Fed (via quantitative tightening) currently hamper such a move. Fed governor Waller last year suggested that Fed could stop its balance sheet runoff once US reserves drop to 10%-12% of US GDP. That’s approximately $2800-3000bn compared to current reserves of $3220bn. The US Note future ticked marginally higher after the comments in today’s only noticeable market move. The US yield curve bull flattens slightly with yields losing 0.8 bps (2-yr) to 2.3 bps (10-yr). The US eco calendar contained near consensus but still very low weekly jobless claims (219k from 214k) and the expected setback in Philly Fed Business Outlook. The indicator reached its second best level since 1983 in January (44.3) before retreating to a still solid 18.10 in February (vs 14.3 expected). New orders fell back from 42.9 to 21.9, but that’s still the second best outcome since November 2021. Shipments equally remain strong at 26.3 (from 41). Both prices paid and received pointed at accelerating inflationary pressures. Companies turned less optimistic on the six months outlook since September though. Markets ignored the numbers. Daily changes on the European curves are neglectable with EUR/USD marginally stronger near 1.0450. European stock markets recover some of yesterday’s corrective losses (+0.30%). ECB Makhlouf warned after yesterday’s hawkish comments by ECB Schnabel that the disinflation process faces dangers. ECB Simkus was more neutral, aligning himself with the three additional 25 bps rate cuts the market discounts over the course of 2025. Everybody agrees that a 25 bps move at the March policy meeting is a done deal, but the outlook becomes more uncertain afterwards. The EMU money market is currently split on the possibility of a pause in April. The next couple of days/weeks remains full of event risk with global PMI surveys, a speech by ECB chief economist Lane and first talks between the US and China tomorrow, German parliamentary elections on Sunday and everything related to the Russian conflict in Ukraine and slow but steadily approaching tariff deadlines.

News & Views

• The National Bank of Belgium’s consumer confidence indicator rose sharply in February. The 7-point surge from -11 to -4 was together with December 2022 the largest one-month improvement since May 2021. From a level point of view it is the highest since September of last year. Belgian households were much less concerned over the labour market: the unemployment series hit its lowest since early 2022. The NBB noted that “More stringent government regulations may be the reason for this.” The widespread pessimism surrounding expectations for the Belgian economic situation abated as well but this is not yet fully being reflected in household’s view on their personal situation. They downgraded their expectations concerning their own financial situation while slightly increasing saving intentions.

• The European Central Bank (ECB) incurred a record loss of almost €8bn in 2024. It’s the second straight loss after booking a €1.27bn shortfall in 2023. They are a direct result of the central bank’s aggressive tightening campaign against the post-Covid inflation surge. That pushed up interest expenditures well beyond the income generated by the (extremely) low-yielding bonds purchased over the previous years. While the ECB may still incur losses in coming years, they should be lower than in the past two due to the central bank’s bond portfolio shrinking and after a series of rate cuts. The combined €9.21bn shortfall will be carried forward to be offset against future profits. The central bank stressed that it can still “operate effectively and fulfill its primary mandate of maintaining price stability regardless of any losses.”