KBC Sunset Market Commentary 22/01/2025 via Trader Talent

KBC Sunset

Wednesday, January 22, 2025

Daily Market Overview

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Markets

• Stock markets took central stage today. Netflix record-breaking earnings and US president Trump’s massive AI infrastructure project (“Stargate”, planning to spend $100bn on Big Tech infrastructure projects, with the figure rising to $500bn (!) over the next four years) gave European and US equity indices even more momentum. The likes of the German Dax, French CAC 40 and EuroStoxx 50 gain around 1%. US benchmarks open up to 0.50% higher with the tech-heavy Nasdaq outperforming (+1%). It overshadowed the looming 10% tariff threat from US President Trump against China which in the end is of course less than the earlier 60% warning. Simultaneously there is some early hope that the Russian conflict in Ukraine might finally be drawing to an end, which starts showing in CE space. Positive risk sentiment marginally supported the euro. EUR/USD set an intraday high around 1.0450 from a start above 1.04, but is currently back at 1.0425. EUR/GBP took a fresh aim at 0.8448/63 resistance on soaring budget deficit data (£129.9bn for the first nine months of the fiscal year, £4.1bn above forecast), but a break didn’t occur. EMU and UK PMI confidence data on Friday offer another possibility. In absence of eco data, there was also some fuzz about Spain’s record-breaking syndicated 10-yr benchmark deal. They received a record €143bn in orders, allowing them to sell €15bn at 5 bps over the Spanish curve compared with guidance in the +8 bps area. There was plenty of ECB rhetoric on the sidelines of the World Economic Forum in Davos but they don’t move the needle in the central bank’s compass nor in market thinking on future policy. Generally speaking, we think that there is a very broad consensus to keep with 25 bps rate cuts at the January and March meetings. Depending on the nature of the ECB speaker (dove-centrist-hawk), the cutting cycle cut might even stretch until April or June. It’s also clear that there’s very little appetite at the moment to take the policy rate even lower. EMU money markets discount a cumulative 75 bps rate cuts in H1 of this year with a final 25 bps move somewhere during H2 2025. Daily changes on European and US curve are limited to 1 bp.

News & Views

• Polish industrial production was down 8% m/m in December. Such a steep drop by year’s end is not unusual but even taking into account seasonal effects, IP was 1.1% lower on the month. Production over the whole of 2024 was 0.6% lower (SA) compared to the same month in 2023. With the December data out, Polish industrial production is back to square one with output basically flat already since mid-2022. The disappointing results also lowered KBC Economics’ GDP nowcast to slightly below 3% for 2024. Polish wage growth (4% m/m, 9.8% y/y) also missed the bar for December but remains quick enough to offset <5% inflation. Such rapid real wage growth is expected to promote private consumption to the main economic growth driver going forward. Employment fell by 0.1% at the end of the year, lowering the y/y-reading from -0.5% to -0.6% – the lowest since March 2021. PPI numbers, finally, came in at 0.2% m/m and -2.6% y/y, also marginally below analysts’ estimates. The Polish zloty couldn’t care less about the weakish data set though. It is instead eyeing a hawkish central bank that’s been sticking to a higher-for-longer narrative for quite some time now. With the help of a constructive risk environment PLN pushes beyond tough resistance around EUR/PLN 4.25 and currently even beyond the December PLN high of 4.23.

• Speaking in Davos, Swiss National Bank president Schlegel defended the use of FX interventions saying they have worked in the past and added that policymakers would use it as a tool again if needed. He shrugged off the possibility of being labeled a currency manipulator by the Trump administration anew, which is what they did during Trump’s first term over the SNB’s previous large-scale interventions. But Schlegel also said that they are not considering a new cap on the franc for the time being. The SNB president noted their primary tool remains the policy rate and repeated they won’t shy away from going back subzero if circumstances require so. The Swiss policy rate currently stands at 0.5% after a large 50 bps cut mid-December. The Swiss franc trades unchanged against the euro around EUR/CHF 0.945. This compares to the 0.9206 briefly seen end of November, which was the strongest CHF level on record – barring the huge volatility spike higher in the wake of the SNB releasing the CHF cap in early 2015.