KBC Sunset Market Commentary 26/05/2025 via Trader Talent

KBC Sunset

Monday, May 26, 2025

Daily Market Overview

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Markets

• European markets have to find out the direction of travel on their own as the US (Memorial Day) and UK markets (Spring Bank Holiday) enjoy a long weekend. In addition, there were no data with market moving potential scheduled for release. European investors were ‘happy’ as president Trump during the weekend made another U-turn after on Friday ‘recommending’ 50% tariffs on European imports as soon as June 1. A weekend phone call with EC Commission President Ursula von der Leyen put the negotiation deadline back at July 9. EMU equities understandably reacted with a relieve rally reversing a part but not all of Friday’s setback (Eurostoxx 50 +1.1%). This feels like a technical rebound, but lacks conviction. Already before Friday’s setback (European and US) equities showed signs running into resistance. Trumps U-turn only illustrates that there is still a lot of work to do to bring some trust and a more structured approach to the US-EU negotiation table. It would be an outright miracle if there wouldn’t be new hick-ups in the run-up to July 09. The trade-theme since Friday again came to the forefront as a driver for trading, but it remains ‘pari passu’ with the topic of debt sustainability. Despite the risk-off, the US 30-y yield on Friday still closed north of 5.0%. After a risk-off decline on Friday, German ST yields today rebound 3.0 bps (2-y) but the long very long end even declines further (30-y -1.0 bp). As is the case for equities, the rebound (in yields) for sure doesn’t reverse Friday’s decline. The restoration of July 09 as the trade talks deadline also isn’t enough for markets to really question expectations for a ‘pre-emptive’ 25 bps rate cut at next week’s ECB meeting. ECB’ Simkus (Lithuania) today reconfirmed he sees room for a rate cut next week as risks of inflation dropping below the ECB goal have increased due to trade frictions and a stronger euro. Especially next week’s ECB updated (inflation) forecasts will be interesting lecture for market watchers. Similar picture or even slightly worse for the US dollar. Trade-driven risk-off most often is a negative for the US currency and a risk-on rebound doesn’t help. The DXY index morning even declined further to test the 98.70 area, but regained some ground to trade still marginally lower compared to Friday (99.05). EUR/USD holds Friday’s gains (1.137). The yen slightly underperforms at 143.

News & Views

• Polish retail sales (at constant prices) rose by 6.2% M/M in April to be 7.6% higher in Y/Y-terms. Consensus expected a more modest increase (+2.1% M/M & +3.4% Y/Y). YTD 2025 sales increased by 3.3% Y/Y. Compared with April 2024, retail sales rose most for “motor vehicles, motorcycles & parts” (+14.9% Y/Y), “furniture radio, TV & household appliances” (+13.2% Y/Y) and “food, beverages & tobacco products” (+9.7% Y/Y). In April 2025, the value of retail sales via internet increased by 7.1% compared to a year ago. The share of sales via internet in total sales was the same as in the previous year (8.8%). The Polish zloty trades stronger against the euro today (EUR/PLN < 4.25), though that’s more linked to general (positive) risk sentiment than the data. This week’s Polish calendar is backloaded with May inflation numbers (Friday) and the second round of presidential elections (Sunday). Especially the latter has market-moving potential. PM Tusk’s candidate Trzaskowski and PiS candidate Nawrocki go neck-and-neck. A Trzaskowski win would enable Tusk to enroll his pro-EU agenda and should support the zloty. A Nawrocki win – he outperformed expectations in the first round – implies more clashes with the government and will weigh on PLN.

• Czech consumer (100.7 from 97.7 vs 98.2 consensus) and business confidence (101 from 96.5 vs 96.9) both surged in May, lifting the aggregate indicator from 96.7 to 101, its highest level since May 2022. Especially businesses turn less pessimistic when compared to the past couple of years. On a sectoral-level, improved business sentiment in industry (+3.9 pts) and selected services (+6.6 pts) outweighed deteriorations in trade (-1.8 pts) and construction (-1.7 pts). Consumers turned less pessimistic on the overall economic situation and their own financial situation over the next 12 months. EUR/CZK is today testing the YtD low around 24.85.