KBC Sunset Market Commentary 24/06/2025 via Trader Talent

Daily Market Overview

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Markets

•          The ceasefire, although cracking and squeaking, between Israel and Iran spurred a global risk-on move that benefited stock markets in the first place. European equities eke out a 1.4% gain. The main US indices built on yesterday’s gains with another 1%+ increase at the open. German Bunds are selling off. Yields add 1.6 (2-yr) to 7.5 bps (30-yr) in a bear steepening move. This is directly related to the German cabinet’s (belated) 2025 budget approval and the mid-term finance plan. It includes a surge in defense and infrastructure spending as well as other short-term growth-supporting initiatives that will raise net new borrowing during chancellor Merz’ term (2025-2029) by >€500bn. The finance agency has already lifted their debt sale forecasts for the upcoming quarter by €19bn. The fiscal boost has the potential to finally revive the economy and that’s starting to show in soft indicators including yesterday’s PMIs and today’s IFO business indicators. The expectations component in the latter matched the highest level (90.7) since the Russian invasion meant the end of cheap energy and ushered in a drawn out industrial malaise. Meanwhile, Trump’s massive bill is moving along a tight schedule to be signed by the president July 4. It’s currently in the Senate, where Republicans are closing in on agreeing to the contentious $40k cap on state and local tax deductions but with the phase down of the tax break to begin at a lower income threshold. This provision in the House version of the bill was a hard-fought one and some Senate Republicans wanted to keep the current $10k cap, potentially resulting in a stand-off between the two chambers and derailing the July 4 deadline. The very long end of the US yield curve in any case underperforms slightly with the 30-yr yield at some point adding 4.3 bps before paring gains to 2 bp. Short-term yields are flat on the day, unphased by Powell’s prepared remarks the Fed chair is to deliver before Congress after wrapping up this report. As expected, though, Powell held the wait-and-see line set out at last week’s policy meeting, offering nothing new. Money markets assume a first full rate cut to take place in September. The dollar on currency markets loses out against all G10 peers, a move which we see closely related to the sharp drop in oil prices (Brent tumbled from over $80/b yesterday to below $69 currently) following the ceasefire. EUR/USD again extensively tested the 1.16 YtD high area. The trade-weighted index is at a key technical juncture around 98. The Japanese yen finds some footing after slipping yesterday. USD/JPY fills offers around 145.1. GBP also recovers from a recent slump against the euro. EUR/GBP trades around 0.852.
 

News & Views

•           The monthly composite confidence indicator released by the Czech statistical office for June eased slightly from 101.0 to 100.1, but remained just above its long-term average. Business confidence fell from 101 to 100 while consumer confidence remained unchanged at 100.7. Confidence increased in the construction sector (+6.5 points) and slightly in industry (+0.3 points). It fell by 3.7 points in trade and by 2.8 points in selected service sectors. Regarding consumer confidence, the balance of consumers expecting the economic situation in the Czech Republic to deteriorate over the next twelve months was almost unchanged. Households were split in their financial situation expectations over the next 12 months. Households' concerns about unemployment and price increases over the next twelve months decreased slightly. Still confidence was lower compared to the same month last year. Despite a mixed economic picture, the Czech national Bank recently showed highly reluctant to ease the policy rate from current level of 3.5%.
•          The CBI industrial trends survey continues to pain a bleak picture on the UK industrial sector. Manufacturing output again fell at the steep pace in the three months to June -23% from -25% in May. Output decreased in 14 out of 17 sub-sectors in the three months to June, with the decline driven by chemicals, metal products and mechanical engineering. Looking ahead,  firms anticipate the pace of the decline to slow over the three months to September. Total order books were reported as below “normal” in June and remained significantly below the long-run average. This was also the case for export orders. Expectations for average selling price inflation eased in June (+19% from +26% in May) but remained above the long-run average (+7%). CBI concludes that “The UK's manufacturing sector is under significant pressure, contending with high energy costs, rising labour costs, pervasive skills shortages, and a volatile global economic environment’.
 

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