KBC Sunset Market Commentary 24/07/2025 via Trader Talent

Daily Market Overview

Click here  to read the PDF-version of this report
 

Markets

•          Trade-related headlines, PMI’s and the ECB policy decision were earmarked to spice today’s trading session. It’s still early days in the US, but for now no white smoke on additional trade deals. A US-EMU trade deal for sure will change the assessment of E(M)U corporations. In this respect, today’s PMI’s rather give a photo on the starting point at the eve a new trade era. Still this starting point wasn’t that bad. At 51.0, the EMU composite PMI reached an 11 month high. Growth remains modest, but it was the seventh consecutive reading above the 50-mark. Output increased both in manufacturing and services. New orders stabilized after 13 months of declines. Export orders still decreased. Higher activity and a stabilisation of new orders encouraged companies to (marginally) raise staffing. The report also brought comforting news on inflation. Input costs still rose but at the slowest pace in nine months and below the series’ average. Manufacturing prices were unchanged. Services price growth softened. The survey still indicates differing intra-EMU trends. Activity in France is still decreasing. Germany for the second consecutive month shows a marginal increase. The rest of EMU registers a solid expansion (best pace since February). It’s no goldilocks scenario yet, but fundamentals aren’t that bad ahead of a (hopefully) acceptable US-EMU trade deal. The report at least didn’t bring any reason for the ECB to leave its wait-and-see bias after easing policy to (a neutral) 2% in June.
•          Indeed, the ECB as expected left its policy rate unchanged at 2%. The ECB assesses that recent information was broadly in line with the GC’s previous assessment of the inflation outlook. Domestic price pressures have continued to ease, with wages growing more slowly. The economy has so far proven resilient overall in a challenging global environment. The environment remains exceptionally uncertain, especially because of trade disputes. ECB guides that ‘it will follow a data-dependent and meeting-by-meeting approach ‘Interest rate decisions will be based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission’ We don’t see hints on any (easing) action for the September meeting. At the press conference, ECB’s Lagarde reiterated that the ECB is in a good place to assess developments. She assessed growth mostly as expected, maybe even a bit better, triggering a further rise in EMU interest rates. Money markets see ‘only’ about a 35% change of a September rate cut. German yields add 2.5 bps (30-y) to 6.5 bps (5-y). US yields also gain 3.5-4.5 bps across the curve, supported by low weekly jobless claims. After trading in the defensive this morning, the dollar temporarily regained traction intraday, but the euro fought back during the ECB press conference (EUR/USD 1.177, DXY 97.4).US PMI’s still have to be published after finishing this report.
 

News & Views

•           UK PMI business confidence disappointed in July. The manufacturing gauge creeped marginally higher to 48.2 from 47.7 but the services index unexpectedly dropped from 52.8 to 51.2. This dragged the overall PMI lower too, from 52 to 51, a level indicative of the economy growing at a mere 0.1% quarterly rate. The sluggish output growth reflected headwinds of deteriorating order books, subdued business confidence and rising costs, including for staffing (which lead to a reduction of employment for a tenth month). All of these elements were widely linked to the ongoing impact on demand of last autumn’s Budget and broader geopolitical uncertainty. Sterling fell slightly after the release, pushing EUR/GBP higher towards 0.8685. Front end yields in the UK ease a tad as bets on Bank of England easing rose. The central bank is widely expected to cut rates at the August 7 meeting.
•          The central bank of Turkey (CBRT) lowered the key policy rate to 43% from 46%. That’s a bigger cut than expected (43.5%) and the first one since the Turkish market meltdown triggered by a political crisis in March. The underlying inflation trend was flat in June and the CBRT is looking through indicators suggesting a “temporary rise due to month-specific factors” for July. While recent data indicate an ongoing disinflationary impact of demand conditions, the central bank remains wary for risks posed by inflation expectations and pricing behavior. Future policy decisions will be “taking into account realized and expected inflation, and its underlying trend in a way to ensure the tightness required by the projected disinflation path”, the CBRT said. The central bank has a 5% inflation target. Turkey’s lira continues its drawn out decline both against EUR and USD. EUR/TRY is nearing a record high 48. USD/TRY moves up to 40.48, having traded higher only at an intraday basis during the March 19 turmoil.
 

Graphs

Table

Contacts