KBC Sunset Market Commentary 23/01/2025 via Trader Talent

KBC Sunset

Wednesday, January 22, 2025

Daily Market Overview

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Markets

• More lackluster, low volatility range trading across most major markets today. For now, visibility on the impact of the Trump policy on (global and US) growth and inflation remains too low, causing (FX and FI) investors to hold to a guarded wait-and-see approach. It is probably also too early to expect any directional guidance from the Fed when Powell comments at the press conference after next week’s policy decision. Aside from the lack of visibility on the global US-dominated picture, economic data are few and mostly second tier. Even US weekly jobless claims (223k) were too close to expectations to even trigger an small intraday move. In technical trading, US yields show a tentative steepening with the 2-y unchanged while the 30-y is adding 4.0 bps. A voluntaristic US (fiscal) policy probably put a floor for (US) yields. The digital address of US President Trump to the World Economic Forum in Davos still remains a wildcard for global markets. German yields are 2-3 bps higher in daily perspective. This week’s equity upleg, pushing (some) US and European equity indices near record levels also stalls. Investors ponder how much ‘good news’ is discounted with the issue of tariffs still looming and the Trump’s announcement of the Stargate AI project also still subject to a higher degree of uncertainty. The EuroStoxx 50 trades almost unchanged. The Nasdaq is ceding 0.3%, but the all-time top stays within reach. Low volatility trading also dominates the price action in the major (USD) cross rates. At 108.25, the USD DXY index is holding an intra-day range of less than 0.5%. EUR/USD is locked near the 1.04 big figure. The yen (USD/JPY 156.4) slightly outperforms as investors are looking forward to the BOJ taking another step in its process of policy normalization tomorrow morning. In the UK, the CBI monthly orders’ report confirmed a poor state of the manufacturing industry with the orders’ subindex holding at a low level. UK firms at the same time see rising cost pressures as higher social contributions from the UK budget are filtering through. The quarterly business optimism gauge declined to the lowest level since Q4 2022. The impact on sterling is limited. EUR/GBP hovers near recent ST top (EUR/GBP 0845 area). Among the CE currency, the zloty extends its ascent with EUR/PLN testing the early 2020 pre-covid low (EUR/PLN 4.20 area) as the NBP is expected to hold its policy rate unchanged at 5.75% still during most of this year.

News & Views

• The Norges Bank kept its policy rate unchanged at 4.5%, but governor Ida Wolden Bache confirmed as expected that it will likely be reduced in March, when new growth and inflation forecasts are available. The Committee’s assessment is that a restrictive monetary policy is still needed to stabilise inflation around target, but that the time to begin easing monetary policy is soon approaching. There is substantial uncertainty about the outlook for both the global and Norwegian economy, but a rapid rise in business costs risks stoking price pressures ahead. The central bank therefore remains concerned with the risk of lowering the policy rate too quickly as it might imply inflation staying above target for even longer. The Norwegian krone is going nowhere withing the 11.50-12.00 trading band in place since August.

• Turkey lowered its policy rate for a second consecutive meeting by 250 bps, from 47.50% to 45.00%. Indicators for Q4 2024 suggest that domestic demand stands at disinflationary levels. While inflation expectations and pricing behavior tend to improve, they continue to pose risks to the disinflation process. The underlying trend of inflation decreased in December but services items will likely trigger an increase in January because of time-dependent pricing and backward indexation. Core goods inflation will remain relatively low. The CBRT will maintain a tight monetary stance until price stability is achieved, suggesting that follow-up rate cuts won’t immediately increase in size. The central bank’s restrictive monetary policy managed to end the TRY-depreciation trend from the beginning of Q4 2024, but for the moment it is still trying to find a bottom rather than really recovering. EUR/TRY currently changes hands around 37.15.