KBC Sunset Market Commentary 28/08/2025 via Trader Talent

KBC Sunset

Thursday, August 2, 2025

Daily Market Overview

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Markets

• Over the previous days, political topics drove premia on interest rate markets. US president Trump challenging Fed independence as he tries to fire Board Member Lisa Cook, raised risk premia at the ultra-long end of the US yield curve. In Europe, political chaos in France, blocking any attempts of the (minority) government to address fiscal imbalances had a similar impact on French and some other (fiscal) risk premia in the region. Both topics are far from solved, but there was no high profile ‘new news’ today. In the US, tomorrow’s July price deflators might instruct markets how strong the case is for the Fed to resume policy normalization at the September 17 meeting. US data today (US Q2 GDP revision from 3.1% to 3.3%, weekly jobless claims at 229k from 234k) were of second tier importance and too close to expectations to be able further shaping this debate. The US yield curve shows a minor correction on recent steepening, with the 2-y adding 3.5 bps while the 30-y eases 2 bps. In Europe, the accounts of the July 24 ECB meeting showed that the policy rate has reached an equilibrium level. Recent data suggest modest/subdued growth. The ECB sees the inflation outlook as broadly in line with the June forecasts, holding inflation at the target medium term. The outlook on inflation remains more uncertain than usual, but risk basically are seen as broadly balanced. The governing council deliberately avoids to give any guidance on next policy steps. The text reads that ‘It was important for the Governing Council to have a two-sided perspective, maintaining full optionality for future meetings’ and that ‘Communication should maintain a careful, neutral tone and be deliberately uninformative about future interest rate decisions.’ German yields today are rising marginally (2-y +2 bps,30-y unchanged). The 10-y spread France above Germany eased slightly (3 bps) to 78 bps. On equity markets, guidance from chipmaker Nvidia at yesterday’s earnings report, this morning caused some caution, but after all the impact on global equity markets stays limited. In hesitant, directionless trading, the EuroStoxx 50 gains modestly (+0.2%). The S&P 500 is holding near/at record levels (+0.1%). On FX markets, the euro today overcomes recent (admittedly limited) France-driven weakness. EUR/USD ‘gains’ from the 1.164 area to currently trade near 1.167. EUR/GBP also ‘rebounds’ from 0.862 to 0.864. Both cross rates still are captured in an extremely thin sideways consolidation pattern. The DXY USD index drops back below the 98 big figure (97.95).

News & Views

• Belgian inflation was unchanged in August, decreasing by 0.01% M/M and from 1.92% Y/Y to 1.91% Y/Y. The main price increases in August were registered for plane tickets (+8.9% M/M), holiday villages (+5%), electricity (+1.1%), the purchase of vehicles (+0.7%) and private rents (+0.3%). However lower prices for natural gas (-3% M/M), household appliances (-6.8%), motor fuels (-0.9%), vegetables (-1.5%) and travels abroad and city trips (-1.1%) balanced the price rises out. Core inflation broadly stabilized as well at 2.3% Y/Y (from 2.36%). A deeper dive showed services inflation rising from 3.27% Y/Y to 3.48% and rent inflation slowing from 4.2% Y/Y to 3.96%. Energy inflation went from -1.86% Y/Y in July to -0.75% in August and food inflation slowed from 2.98% Y/Y to 2.42%. The first inflation estimate according to the European harmonised index of consumer prices (HICP) amounts to 2.6% for Belgium in August 2025. More national figures are due tomorrow (Spain, France, Italy, Germany) with the EMU number on tap on Monday.

• New EU car registrations were 0.7% lower in July (YTD) compared with the first seven months of last year. In the year-on-year comparison however, car registrations increased by 7.4% according to numbers from the European Automobile Manufacturers Association. Up until July 2025, battery-electric cars (BEV) accounted for 15.6% of the EU market share, an increase from the low baseline of 12.5% in July 2024 YTD. Hybrid-electric car registrations continue to surge, capturing 34.7% of the market (from 29.6%), remaining the preferred choice among EU consumers. Meanwhile, the combined market share of petrol and diesel cars fell to 37.7%, down from 47.9% over the same period in 2024. In Belgium, 42.4% of new car registrations (YtD) are petrol cars (from 42.9% YtD in 2024), followed by BEV’s (32.7% from 25.1%), HEV’s (11.5% from 9.2%)) and plug-in hybrid electric vehicles (8.9% from 16.8%).