KBC Sunset Market Commentary 28/02/2025 via Trader Talent

KBC Sunset

Friday, February 28, 2025

Daily Market Overview

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Markets

• President Trump seriously shook up a growth-focused market with some renewed tariffs threats. A nasty equity sell-off, compounded by tech heavyweight Nvidia, ended up in declines of almost 3% on Wall Street yesterday. It resulted in a break lower that worsened the technical picture. Sentiment deteriorated in European after-market hours, meaning stocks on the continent had to catch up somewhat today. The EuroStoxx50 pared opening losses of 1%+ to 0.5% currently. US investors show little appetite to buy the dip so far. Stocks open mixed despite in-line January PCE deflators marginally raising bets for Fed easing this year. Both the headline (0.3% m/m and 2.5% y/y) and core (0.3% m/m, 2.6%) eased from December. They go against the message delivered by the CPIs released earlier this month. Several Fed members (including Waller) already said they didn’t expect PCE to be as alarming. US yields decline up to 2 bps with sentiment having grown more vulnerable into the first minutes of the US session. Other eco data included a sharp rise in personal income (0.9% m/m vs 0.4% expected), which was counterbalanced by an unexpected drop in spending, both nominally and real. German net daily rate changes vary between -1 and -2 bps. A small uptick in the wake of slightly higher-than-expected German inflation was overturned quickly. Prices rose 0.6% m/m and 2.8% y/y, a 0.1 ppt beat vs consensus in both measures. A miss in the French CPI (flat on a monthly basis, 0.9% y/y) will have offset the German impact in next week’s European print anyway. US growth concerns eventually dominated over the weak sentiment in the dollar FX market. EUR/USD ekes out a slight gain to north of 1.04. DXY hovers near yesterday’s closing level.

• Next week offers new chances to crosscheck the market’s changed reaction function with the US ISMs, ADP job report and payrolls. After the European CPI on Monday, special attention shifts to March 6, when European leaders hold a special summit dedicated in finding ways to fund a huge defense investment need. The ECB meets that day as well. A 25 bps rate cut to 2.5% is all but certain. Question is how loud the hawks (Schnabel in particular) will have shout at the current point in the easing cycle. Amongst others, we suspect the ECB will no longer label policy as “restrictive” in the statement.

News & Views

• Czech Q4 GDP was upwardly revised from 0.5% to 0.7% Q/Q and the economy grew by 1% for the whole of 2024. Czech consumption grew by 1.5% Q/Q and by more than 3% Y/Y at the end of the year, while investment (-1.5% Q/Q and -2.4% Y/Y) and foreign trade (real exports down by 1.5% and imports down by 1.9% Q/Q) continued to fall significantly. While today's advanced GDP numbers could theoretically lead to a slight upward revision of GDP for 2025 in aggregate, we are not doing so. We perceive quite significant risks to investment – in particular, given rising uncertainties associated with global trade – and therefore continue to forecast growth near 2% this year (with risks skewed to the downside). From a CNB perspective, the revised GDP number is a slightly positive surprise – overall GDP is growing 0.4 %pts faster than the latest staff forecast suggested. Underlying details give both hawkish and dovish voices in the Bank Board arguments. The mood at the CNB Board will be determined in coming weeks mainly by more industry figures, January inflation, wage growth and possible geopolitical shocks (25% tariffs on exports).

• Both Canadian and Swedish Q4 GDP was stronger than expected than well. The Swedish economy accelerated from an upwardly revised 0.6% Q/Q pace in Q3 to 0.8% in Q4 (2.4% Y/Y). Details showed consumption adding 0.7%, gross fixed capital formation rising by 1.8% and net exports contributing to growth with exports rising by 0.7% and imports falling by 0.5%. Households real disposable income increased by 3.5% Y/Y. Together with higher CPI readings earlier this month, these activity figures strengthen the Riksbank’s case of ending the rate cut cycle at the current level of 2.25%. Canadian GDP accelerated from 0.5% to 0.6% Q/Q with household spending increasing by the most in over two years (1.4% Q/Q), residential construction increasing at the fastest pace in over one year (+3.9%), export growth (1.8%) outpacing import (1.3%) growth and business investment up.