KBC Sunset Market Commentary 27/02/2025 via Trader Talent

Daily Market Overview

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Markets

•          Trump’s tariff threat against Europe weighed on European risk sentiment with key indices losing between 0.50% and 1.50%. In the first cabinet meeting of his second term, the US president suggested that a plan was made and that then announcement would follow soon: “It will be 25% generally speaking, and that will be on cars and all other things.” The damage for the euro could have been bigger with EUR/USD slipping from just below the 1.0533 resistance area towards 1.0460-1.0480 until the early morning eco data releases. European yields were barely impacted. The European eco calendar contained sticky Spanish and Belgian inflation together with a slightly stronger economic confidence indicator by the EC. Minutes of the previous ECB meeting bolster the case for more rate cuts by the ECB beyond March as downside growth risks prevail, though at a slower pace. ECB Schnabel and Wunsch earlier hinted in the direction of pausing in April. Markets ignored today’s European input.

•          Volatility intensified in the run-up to the US opening bell. First, US eco data added to the recent shift from Goldilocks to stagflation with weekly jobless claims unexpectedly spiking from 220k to 242k (matching highest since early October 2024; DOGE at work?!), US core capital goods shipments (input for GDP calculation) declining (instead of the hoped-for increasing) by 0.3% M/M in January and the core PCE priced index facing an upward revision for Q4 (2.7% from 2.5%). The impact of the data mainly showed in a spike lower in US yields, but those moves didn’t last. Next came US President Trump who clarified yesterday’s messy communication on tariffs against neighboring countries Mexico and Canada. They will go into effect on March 4 instead of April 2 like Trump yesterday falsely suggested. China will also be charged an additional 10% tariff from that date onwards. Currencies of (potential) tariff victims suffered the biggest setback with EUR/USD extending its slide towards 1.0420. USD/CAD moves from 1.4360 to 1.4430 and USD/MXN from 20.35 to 20.55. US stock futures handed in some of the earlier gains because of the third element at play this morning: Q4 Nvidia earnings. Strong results were at first met by some skepticism as market gotten acquainted to stellar rather than good numbers. In pre-market trading, investors are nevertheless giving the thumbs up, supporting the broader equity market.
 

News & Views

•          Belgian inflation (CPI; national methodology) rose in February by 0.2% M/M and 3.55% Y/Y, easing from 1.39% M/M and 3.55% Y/Y in January. Core inflation excluding energy products and unprocessed food was little changed at 3.1% Y/Y. In a monthly perspective, gas prices rose 2.6%, electricity prices 1.5%, flowers and plants’ prices increased 8% M/M with the price of water consumption rising 5.5% due to a price increase in the Walloon region. Prices for clothes declined 4.3% M/M. In a broader perspective, services prices inflation rose 4.34% Y/Y from 4.13%. Rents inflation eased slightly (3.3 from 3.41%). Food inflation stood at 2.22% from 2.54%. Due to a base effect from the removal of household premiums last year, energy inflation also eased from 15.89% Y/Y to 8.71% Y/Y this month. The first estimate of according to European harmonized index (HICP) amounts to 4.4% (unchanged). A separate report, showed that hourly labour costs in the economy in Q4 increased by 2.2% at an annual basis.

•          Swiss Q4 GDP growth (adjusted for sporting events) was solid, accelerating from 0.2% Q/Q to 0.5% Q/Q. Activity was 1.2% higher Y/Y. In an expenditure approach, domestic demand was the main driver with a solid performance of private consumption and government consumption, both adding 0.5% Q/Q, slightly above historical averages. Construction investment also rose 0.5% Q/Q. After two negative quarters, spending on equipment and software investment grew 1.0% Q/Q. For 2024 as a whole, adjusted growth is estimated at 0.9% Y/Y, from 1.2% in the previous year. In a production approach, decent growth was recorded in manufacturing (1.9%) due to the chemicals and the pharmaceutical industry while accommodation and food services (+3.5%) profited from international tourism. Retail trade also performed well (1%) for the second consecutive quarter. With inflation still extremely low (0.4% Y/Y in Jan) and plenty of uncertainty looming, the solid Q4 data probably won’t prevent the SNB from further cutting its policy rate in March 20 from 0.5% now to 0.25%. EUR/CHF holds within the 0.932/0.952 range.
 

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