KBC Sunset Market Commentary 27/06/2025 via Trader Talent

KBC Sunset

Friday, June 27, 2025

Daily Market Overview

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Markets

• Positive headlines from US Commerce Secretary Lutnick on negotiations with China and other trading partners eased risks related to trade and supported a broad risk-on sentiment. The US has finalized the trade framework with China agreed in Geneva last month and indicated that it is nearing agreements with 10 other trading partners. This good news of course remains quite vague and the devil is in the final details. The potential ‘temporary’ framework that trading partners like the EU will have to cope with as they extend negotiations beyond July 09, remains a source of uncertainty/potential unrest. Whatever these considerations, the Eurostoxx 50 gains 1.1% while the Nasdaq (+0.35%) and the S&P500 (+0.3%) are touching all-time record levels. Yield curves this morning took a breather after recent steepening moves and this was maintained throughout the day. First national EMU CPI inflation data (France HICP 0.4% m/m and 0.8% y/y from 0.6%, Spain 0.6% m/m and 2.2% y/y) were marginally softer than expected. It doesn’t change the picture for ECB policy going into the second half of the year. The ECB policy rate is at a neutral level and it now can hijack the ‘current’ Fed narrative that it is in a good place to navigate multiple event risk/uncertainties. German yields add 2-3 bps. The May US core PCE deflator at 0.2% m/m and 2.7% y/y was slightly higher than expected, but personal income (-0.4%) and spending (-0.1% nominal, -0.3% real) ) showed a substantial miss, indicating a further loss in demand/growth. US ST yields tentatively tried the downside after the publication of the report, but they finally held to the pause after the recent protracted bull steepening. US yields currently are rebounding 3-4 bps across the curve.

• Even as (US) yields tried a cautious rebound today, it doesn’t bring reprieve for the dollar. With DXY at 97.1 and EUR/USD 1.1735, the protracted USD retreat simply continues. Softer than expected Tokyo CPI data published this morning still cause the yen to underperform other majors in the overall USD decline (USD/JPY stable near 144.6). Sterling today slightly underperformed the euro (EUR/GBP 0.8545).Gilts basically track, even tentatively outperform EU/German interest rate markets. UK Prime Minister Stramer backtracking on welfare reforms that are estimated to cost £3bn a year for now only had limited impact on (UK) markets. Even so, it further reduces Chancellor Reeves’ policy room and illustrates the tight/highly uncomfortable fiscal framework the government has to cope with. This for sure will return to the forefront when preparing the new budget proposal in autumn. We see it as a structural handicap for sterling going forward.

News & Views

• Belgian inflation rose 0.35% M/M in June, pushing the annual figure up from 2.01% to 2.15% and ending the Y/Y decline in place since the start of the year (from 4% in January to 2% in May). Lower electricity prices (-0.7% M/M) partly offset price increases for holiday villages and camping sites (+7.2%), meat (+1.2%), private rents (+0.6%), hotel rooms (+4.2%), household appliances and repairs (+3.7%), restaurants and cafés (+0.3%), non-alcoholic beverages (+1.6%) and fruit (+1.6%). Inflation based on the health index remains unchanged at 2.37% Y/Y. Core inflation rose marginally, from 2.59% Y/Y to 2.63% with rent inflation (4.09% Y/Y from 3.60%) outweighing slightly lower services inflation (3.57% from 3.65%). Energy inflation fell further, from -1.10% Y/Y in May to -1.75% while food price inflation stood at 3.14% Y/Y from 2.04%.

• The European Commission’s business and consumer surveys pointed at weakening economic sentiment in the E(M)U. The decline in the Economic Sentiment Indicator (94 from 94.8 for EMU) was primarily driven by reduced confidence the industry (-1.1; sub-indices on order books, stocks and production expectations all down), with retail trade (-0.5; lower assessment of volume of stocks and business expectations for next 3 months) contributing to the downturn to a lesser degree. Confidence in the services sector (+0.2) and among consumers (-0.3) remained broadly stable. Construction confidence continued to pick up (+0.7; rising employment expectations). Among the largest EU economies, the ESI dropped most in France (-3.4), followed by Spain (-1.4) and Germany (-0.8). The Employment Expectations Indicator was unchanged at 97.5. Managers’ selling price expectations continued to decline in industry, services, and construction. Consumers’ price expectations for the next 12 months and perceptions of price developments over the past 12 months decreased as well. Both remain at elevated levels in absolute terms though.