KBC Sunset Market Commentary 23/04/2025 via Trader Talent

Daily Market Overview

Click here  to read the PDF-version of this report
 

Markets

•          April EMU PMI surveys showed business activity broadly unchanged. The composite gauge dipped from 50.9 to 50.2 (vs 50.1 expecting), narrowly holding above the boom/bust level (50) for the fourth consecutive month. There were contrasting trends between marginally decreasing business activity in services (49.7 from 51) and the manufacturing sector holding up better than expected (48.8 from 48.7; 27-month high). Moreover, the manufacturing output index rose for a second month straight (51.2 from 50.5), recording a 35-month high. Despite the US introducing general tariffs of 10% and car tariffs of 25%, manufacturers increased production, slowed down job cuts and managed to boost their profit margins thanks to lower input prices and the ability to raise output prices faster. Lower energy prices and the announced increase in defense spending are currently a boon for the EMU’s manufacturing sector. On a national level, German manufacturers even saw a slight uptick in export orders, the first since early 2022. Apart from hopes of reaching some compromises with the US, Germany has a well-diversified export base (90% of exports go to countries other than the US). Overall cost inflation remains centered around services (wages) but input costs increased at the slowest pace since November last year. Selling prices were raised across both sectors. The most pessimistic part of the PMI survey was a sharp drop in business confidence, with sentiment down to the lowest since November 2022. In a separate release, the ECB’s wage tracker predicts wage growth to slow from >=4% in Q1 and Q2 (annualized) to 2.1% Q/Qa in Q3 (from 2.2% last month) and 1.6% Q/Qa in Q4 (up from 1.5%). EMU markets didn’t respond to today’s data releases.
•          US President Trump succumbed to market pressure a second time by saying it isn’t his intention to sack Fed chair Powell. Earlier this month, he immediately cut reciprocal tariffs to the 10% base rate for at least 90 days. Twice, the U-turn came after US assets went into tailspin. In the same vein, he suggested that high tariffs against China will come down substantially with Treasury Secretary Bessent also indicating that the current implicit trade embargo between the two nations isn’t the longed-for outcome. Markets start seeing a pattern here and responded positively. US stock markets are on track for back-to-back gains of 2.5%. European stock markets equally gain over 2%. US Treasuries rally with the curve bull flattening. US yields lose 2.2 bps (2-yr) to 13.8 bps. Interestingly, the German yield curve bear flattens with yields up 2.2 bps (30-yr) to 6.3 bps (2-yr). It affirms both German Bunds’ safe haven status and markets overly optimistic ECB rate cut bets. EUR/USD held rather steady around 1.14.
 

News & Views

•          EUREX, Europe’s largest bond futures (and derivatives in general) exchange, announced the introduction of EU bond futures for September 10. The launch was expected for last year but got postponed due to concerns over the sustainability and the long-term nature of the EU’s joint bond programme. The news will be welcomed by EU officials, who have been pushing for increased liquidity in EU bond trading via several ways, including through the creation of a repo facility. The bloc is also lobbying to have the bonds included in sovereign debt indices but the major index providers (ICE, MSCI) so far keep refusing. The launch reflects EUREX’s “strategic commitment to supporting European ambitions for greater autonomy at a time when the continent is relying on additional debt issuance”, the global head of products and markets said. The EU quickly became the fifth largest borrower in the wake of the pandemic’s Next Generation EU programme. Since then, momentum is building for joint EU borrowing to help finance the upcoming huge defense investments.
•          UK April private sector activity unexpectedly contracted for the first time in 1,5 years with the composite PMI dropping from 51.5 to 48.2. Optimism for the year ahead outlook slumped to its lowest since October 2022. The decline was led by the services sector, falling to 48.9 from 52.5 on rising global economic & tariff uncertainty and subdued domestic demand. Manufacturing production volumes dropped at the steepest rate since August 2022 due to weakening market conditions, particularly in key export destinations. This resulted in a solid reduction in new work inflows for a fifth month running. Both sectors kept cutting back employment due to decreased workloads and rising payroll costs. The latter is still a consequence of the Labour government’s tax increases and jolted input cost inflation to the fastest pace since February 2023. Output charge inflation picked up to the highest for nearly two years. The stagflationary narrative once again highlights the tough trade-off the Bank of England faces. The pound sterling erased earlier gains against the euro to trade nearly unchanged around EUR/GBP 0.857.
 

Graphs

Table

Contacts