KBC Sunset Market Commentary 22/07/2025 via Trader Talent

KBC Sunset

Tuesday, July 22, 2025

Daily Market Overview

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Markets

• Global markets today are captured in guarded (holiday thinned) trading, awaiting more concrete news later this week/next week. US and EMU PMI’s on Thursday will give some insight on current activity and corporates’ intentions as trade negotiations between the US and its (major) trading partners are entering ‘money time’. The ECB will hold a regular policy meeting also on Thursday. However, after reducing the policy rate back to a neutral 2% level in June, the bank now is in a good position to await the outcome of the trade negotiations before giving new guidance. Markets in the meantime shifted to a more cautious risk bias as recent headlines/rumours on the negotiations between the US and its trading partners suggest that the final reciprocal tariff might be higher than the 10% level that EU (and other countries) deemed feasible. On the other hand, US Treasury Secretary Bessent turned quite constructive on trade talks with China scheduled of next week in Stockholm. After hitting an air pocket yesterday on trade-related uncertainty, US and EMU yields today are changing less than 2 bps across the curve. The ECB today published its Q2 bank lending survey. Credit standards for firm loans remained broadly unchanged. Credit standards tightened slightly for housing loans and more markedly for consumer credit. On the demand side, housing loan demand continued to increase strongly, while demand for firm loans remained weak. The impact of the survey on European interest rate markets was close to non-existent. The Eurostoxx 50 corrects further (-0.70%). US equity indices are taking a breather (S&P little changed near record levels).

• On FX markets, the dollar yesterday surprisingly lost ground on trade-related uncertainty. Today, changes in major FX are very limited. DXY holding almost unchanged (97.8). EUR/USD is holding a very narrow range close to 1.17. Bessent took a softer tone on the position of Fed Chair Powell compared to other comments from the White House of late. He indicated that the Fed Chair could stay in place till the end of his term even as Bessent still calls for a review of the Fed’s non-monetary policy activities. This might provide some relief for the dollar. The yen gains modestly as Japanese markets reopen for the first trading session after the LDP led government lost its majority in the Upper House elections this weekend. The topic of fiscal sustainability is here to stay as the minority government will have to make ad hoc agreements with opposition parties to address concerns on the cost of living crisis. LT Japanese bonds and the yen remain vulnerable, but the first market reaction remains guarded. The yen in some kind of sell the rumour, buy the fact bias, rebounds modestly yesterday and also today (USD/JPY 146.8). Sterling initially underperformed today after the ONS released disappointing monthly public sector borrowing data (PSNB £20.7 bn vs £17.5 bn expected). EUR/GBP briefly ticked up to 0.868, but a test of the EUR/GBP 0.87 still proved one bridge too far for now (currently again 0.867).

News & Views

• Belgian consumer confidence stabilized at -4 to remain above its long-term average, the July consumer confidence survey of the national bank of Belgium (NBB) showed. “After the marked upswing in confidence observed since May, consumers have now turned somewhat more pessimistic about macroeconomic factors”, the NBB noted. Expectations for the general economic situation worsened and concerns about an increase in unemployment have also risen slightly. But on a personal level, households appear more optimistic about their own financial situation. As was the case last month, there is no change in their savings intentions.
• People familiar with the matter said the Bank of Japan see little need to shift their policy stance of gradually hiking interest rates after the ruling coalition lost its majority in the Upper House last Sunday. The risk is for a considerably looser fiscal policy amid PM Ishiba’s LDP and Komeito party caving to opposition demands, potentially lifting inflation – which is above the 2% target for three years already – even further. But for now the BoJ would simply monitor the situation rather than preemptively act on it. The central bank meets next week and the people added that the 0.5% base rate would probably stay there against the backdrop of trade negotiations with the US still ongoing.