KBC Sunset Market Commentary 26/06/2025 via Trader Talent

KBC Sunset

Thursday, June 26, 2025

Daily Market Overview

Click here to read the PDF-version of this report

Markets

• Bull steepening is name of the game this week in the US. From Friday’s close, yield changes currently range between -6.5 bps (30-yr) and -17 bps (2-yr). The outperformance at the front end of the curve is driven by a slew of disappointing US eco data, a subtle change of tone in Fed Chair Powell’s House testimony after some monetary doves already ruffled their feathers and the latest rant of US President Trump against that same Fed chair. To be clear: official Fed rhetoric still strictly focuses on fighting (upside) inflation (risks) by means of an unaltered policy rate (4.25%-4.5%) in restrictive territory. Fed Chair Powell at the press conference indicated that we’ll know a lot more over summer. For the first time he emphasized cutting policy rates sooner rather than later in case of a weakening of the US labour market or if inflation risks don’t materialize. By doing so, he starts creating room for maneuvering by the September Fed meeting. SF Fed Daly today also suggested that fall looks promising for a rate cut. Given the policy space left above neutral (3%) and with the Fed’s daring 50 bps opening rate cut last September in mind, we believe the US central bank might use a stealth normalization strategy once it is confident that the ultimate tariff level won’t significantly and structurally raise inflation (expectations). The set-up implies asymmetric risks going into next week’s ISM surveys, ADP employment change and payrolls with markets especially attentive to downside risks. Looking at the technical chart of the 2-yr yield, we see more downward potential in coming months in first instance towards 3.5% (low 2023/2024/2025) but likely even towards the 3%-zone. The relative loss of interest rate support adds to the long list of USD-negative factors. The US currency today touched multiyear lows against some majors after president Trump openly played with the idea of rapidly nominating Powell’s successor turning the current Fed chair into yesterday’s man: EUR/USD 1.1744, GBP/USD 1.3765, DXY 97. The greenback remains in a sell-on-uptickspattern. Apart from the data and Fed positioning, near term risks include the passage of Trump’s big beautiful, deficit-enlarging bill.

News & Views

• The Swedish National Institute of Economic Research published its June Economic Tendency indicator. It declined from 94.5 to 92.8, which the NIER labels as weaker than usual. On the business activity side, sentiment softened across all sectors. Manufacturing confidence declined only marginally and stays close to the historical average, but pricing plans fell notably. While declining, construction sentiment signals a ‘normally strong mood’. The decline in the trade sector was one of the largest ever recorded, signaling a weak mood. Confidence in the services sector also declined, reaching the lowest level since February 2024. Consumer confidence rose slightly but remains at a low level. This weak Tendency Survey comes as the Minutes of the June Riksbank meeting yesterday showed ample support for the 25 bps cut to 2% on June 19. There was also broad support to at least keep the option open for further easing later this year as several MPC members acknowledged downside risks to growth that might warrant some policy support while (underlying) inflationary pressures are seen easing. Money markets almost fully discount an additional cut in H2. The krone declined after the last week’s decision with EUR/SEK holding above 11 (11.07).

• The June retail sales measure of the Confederation of British industry was very poor. June sales declined sharply this month with the reported balance at -46% from -27% in May. This marked the ninth month in a row of declining volumes and retailers expect sales to fall further in July (-49%). Sales volumes for the time of year were judged to be “poor” to a greater extent than in May (-37% from -19%).Retail orders placed upon suppliers (-51 from -41) in the year to June declined at the fastest pace since December 2023 and retailers expect orders to fall at a similar pace next month. At the same time, retail stock volumes rose in relation to expected demand (+26% from +12%; long-run average of +17%) and are set to remain elevated in July (+27%). Wholesale sales declined at a slower pace in the year to June (-34) but are expected to fall again next month (-39%). The UK curve steepens further today. Sterling declines only marginally against the euro (EUR/GBP 0.8534). Cable even tests the strongest level against a weak dollar since October 2021 (GBP 1.372).