KBC Sunset Market Commentary 25/08/2025 via Trader Talent

KBC Sunset

Monday, August 25, 2025

Daily Market Overview

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Markets

• Core bond yields recovered several basis points from Fed chair Powell’s drop shot in his Jackson Hole appearance last Friday. The Fed’s ready to pivot back into rate cuts starting from September and that caused some bull steepening of the curve. US rates today found some support, adding around a little less than 3 bps across the curve. It’s interesting to see the front end (eg. the 2-year tenor) still trading higher than the post-payrolls trough despite Powell’s strongest hint at rate cuts this year so far. It shows that not everyone is convinced the US economy and labour market is in a state that requires near-term monetary support. Money markets price an 80%+ chance for a resumption of the easing cycle at the September 17 meeting. This week’s PCE deflators and next week’s ISMs and labour market report are among the final data points that’ll tip the scales. European/German bonds already underperformed Treasuries end last week and continue to do so at the start of the new one. German rates rise up to 5 bps with the belly of the curve underperforming the wings. The 2-yr yield is nearing the summer highs close to 2% along with money markets further pricing out an additional ECB rate cut. The market implied probability for an end-of-year finetuning move dropped to less than 25%. ECB president Lagarde in a Fox interview struck a relatively upbeat tone, saying the economy isn’t exactly thriving but it’s “increasingly back to potential”. Growth is on the way up, she said, with the fundamentals such as consumption and investment looking good at the moment. Her comments chime with last week’s message from the August PMIs. Lagarde also believes that enterprises are going to deal with the 10% tariff levy the US and EU agreed to a couple of weeks ago, provided the trade deal isn’t going to be challenged and renegotiated “a hundred times”.

• Currency markets trade stoic and without a clear direction. The dollar’s attempt to claw back is a meagre one, at best. The trade-weighted index tested the 98 level, compared to Friday’s close of 97.71. EUR/USD inches lower in choppy trading. The pair is currently hovering near the 1.17 big figure. JPY is the laggard today, letting USD/JPY move higher towards 147.5 and EUR/JPY to 175.5. Sterling is going nowhere around the EUR/GBP 0.866 level. Liquidity is markedly lower with UK markets closed for the Summer Bank Holiday. Hungary’s forint is trailing Central European peers these last couple of days. HUF benefited more than the likes of CZK and PLN from rising hopes on progress in the conflict in Ukraine but faced a backlash in recent days. EUR/HUF rebounded from an 11-month low below 394 mid-August to 397.7 now.

News & Views

• Czech economic sentiment measured in the monthly business cycle survey, rose from 99.7 to 101.1 in August, the highest level since May 2022. Details showed a divergence between deteriorating consumer confidence (104.1 to 99; lowest since April) and improving business confidence (98.8 to 101.5; best since June 2022). Compared to July, the share of consumers expecting a deterioration in the overall economic situation in the Czech Republic and in their financial situation over the next twelve months increased. In addition, the number of households that assess their current financial situation as worse than in the previous twelve months increased. The number of respondents who do not plan to make large purchases in the next twelve months remained almost unchanged. In the business confidence survey, only industry sentiment was status quo with selected service sectors, construction and trade all showing monthly gains.

• The Belgian debt agency auctioned three OLO lines (€1.02bn OLO 97 3% Jun2033, €0.93bn €0.77bn OLO 100 2.85% Oct2034 and OLO 101 3.5% Jun2055). The combined amount sold was slightly above the maximum of the targeted €2.3-2.7bn range. The Belgian debt agency is well in time with this year’s funding plans. They’ve now secured €37.17bn in OLO funding compared with a €47bn OLO funding need. By sticking with benchmark sizes at the three remaining monthly auctions, they can have the job done by November.