KBC Sunset Market Commentary 26/02/2025 via Trader Talent

KBC Sunset

Wednesday, February 26, 2025

Daily Market Overview

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Markets

• The three-day rally in US Treasuries came to a halt today. An empty eco calendar played a part in that following three days of stagflationary worries (PMI’s, Michigan consumer confidence, Conference Board consumer confidence). More importantly, the US House passed a budget resolution that could pave the way for huge spending and especially tax cuts. The resolution is now headed to Senate where it will likely be amended as Senators target even more than the $4.5tn of lower taxes. Once the House and Senate are on the same line, legislation can pass via simple majority reconciliation process. US treasury yields are close to unchanged suggesting it’s way too soon to call the correction already over. Q4 Nvidia earnings after US close tonight could already be an important test for general sentiment. European trading lacked guidance from the eco calendar as well. Solid corporate earnings and the mineral-rights deal between the US and Ukraine (to be signed in Washington on Friday) pushed European stock markets up to 1% higher. Changes on bond markets were minimal with EUR/USD camping just below the 1.0533 resistance (YTD top).

• The Flemish Community launched its first syndicated benchmark deal of the year. They issued a long 12y bond (Jun2037) which was priced 20 bps over the Belgian OLO curve. That’s 5 bps tighter than guidance in the OLO +25 bps area. Books were above €4.4bn allowing Flanders to print €1.5bn. Flanders Department of Finance estimates new funding needs for 2025 at roughly €11bn, the lion share of which is to cover new funding needs (€7.1bn). The funding need mainly stems from an estimated budget deficit of €3.4bn and other (recurring) funding needs such as the Flemish Social Housing Company (VMSW €0.8bn), the Flemish Housing Fund (VWF €1.41bn) and costs related to the Oosterweel link (LANTIS €0.8bn). Debt redemptions for 2025 are projected at €3.9bn. For its 2025 financing mix, Flanders hopes to raise €3.25-3.75bn via regular benchmarks, €1.25-1.50bn via sustainability (green) benchmarks, €0.75-1bn via private placements and €0.4bn through EIB loans.

News & Views

• The Institute of International Finance (IIF) in its Global Debt Monitor reported the world’s debt stock rose to a new annual record high of $318tn in 2024. The debt-to-GDP ratio neared 328% in 2024, in what was the first (1.5 ppt) uptick since 2020 amid slowing economic growth. While the $7tn increase of last year was less than half of 2023’s, the IIF still warned persistent rising fiscal deficits are attracting growing market scrutiny. The governments’ share in the global stock of debt amounted to $95tn. The IIF forecasts a further $5tn rise this year though warned this could be even more due to calls for fiscal stimulus and defense spending in Europe. On a geographical level, emerging markets – driven by China, India, Saudi Arabia and Tukey – accounted for roughly two-thirds of 2024’s global debt growth.

• Chief of staff to Hungary’s PM Orban Gulyas in an interview with news site 24.hu said GDP growth this year will likely be lower than the official government growth target of 3.4%. Economic growth of 2%-3% seemed more realistic, he said. As the 3.4% estimate still forms the basis of the 2025 budget approved end last year, it means the 3.7% deficit penciled in already appears outdated. That’s especially the case with the Orban administration trying to (fiscally) revive the economy ahead of next year’s parliamentary elections. Orban’s Fidesz party is trailing the Tisza Party since the end of 2024. The Tisza Party gained rapidly in popularity after former Fidesz member Peter Magyar resigned out of discontent with government functioning and took the lead of Tisza in early 2024.