KBC Sunset Market Commentary 30/06/2025 via Trader Talent

KBC Sunset

Monday, June 30, 2025

Daily Market Overview

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Markets

• The European opening session of the week developed quiet and orderly. Trading settings which are unlikely to be repeated later this week given the avalanche of eco data and events approaching. The ECB published its first strategic review since 2021 (see news & views) as an appetizer in the build-up to the annual gathering in the Portuguese town of Sintra. It didn’t contain any groundbreaking views though. “Adapting to change: macroeconomic shifts and policy responses” is this year’s topic at the European Jackson Hole equivalent with ECB President Lagarde kicking off after European close with an introductory speech. A panel discussion with Lagarde, Fed Chair Powell, BoE Governor Bailey, BoJ governor Ueda (and BoK governor Rhee) is the forum’s headliner tomorrow afternoon. German harmonized inflation numbers showed price pressure unexpectedly slowing to 0.1% M/M and 2% Y/Y in June, making it a mixed national bag of numbers so far with upward surprises in Spain (0.6% M/M & 2.2% Y/Y) and France (0.4% M/M & 0.8% Y/Y) on Friday and in-line Italian data (0.2% M/M & 1.7% Y/Y) this morning. It makes for a likely dull, but welcome from a central bank point of view, outcome for tomorrow’s aggregate number (0.3% M/% & 2% Y/Y expected for headline; 2.3% Y/Y for core). Markets neglected the data with (EMU) inflation playing second fiddle as it hovers near the 2% price target will policy now well positioned to face an uncertain outlook. German yields trade up to 1.5 bps lower in a gentle steepening move. US Treasury yields slide 2 bps across the curve as focus turns to US Congress where Senators started a marathon of votes to finetune their version of President Trump’s Big Beautiful Bill after narrowly securing victory in a first procedural vote (51-49) on Saturday. A final Senate vote could come late today or early tomorrow. If it passes, the bill would then move back to the House. Despite today’s muted action in the Treasury market, we’d err on the side of new underperformance at the (very) long end of the curve later this week. The front end will be more interested in this week’s eco data (ISM’s and labour market update) and seems eager to exploit any sign of potential weakness. The combination of both won’t bode well for the dollar which remains stuck near multi-year lows (DXY 97.30; EUR/USD 1.1716; GBP/USD 1.3687).

News & Views

• Polish inflation in June rose by 0.1% m/m to be up 4.1% on a yearly basis. The numbers printed broadly in line with expectations. Some details from Statistics Poland showed amongst others food and non-alcoholic beverage prices rising 0.1% m/m while energy prices (including electricity and gas) eased by 0.3% m/m. Transport fuels tumbled 1.3% in a monthly perspective. The June print means headline CPI is above the central bank’s upper bound of the 2.5% +/- 1 ppt tolerance range for a year now. Core inflation is due for release July 17 but has been trending lower in recent months to 3.3% in April, allowing the central bank (National Bank of Poland) to resume easing in May (-50 bps to 5.25%). The NBP made clear it would tread cautiously though. We expect one 25 bps move in Q3 followed by a cumulative 50 bps in cuts in the final quarter of this year (to 4.5%). Polish swap yields left the intraday lows after today’s release but remain up to 2.5 bps down for the day. The zloty trades stoic around EUR/PLN 4.24.

• The ECB in its updated strategy reaffirmed its commitment to a symmetric 2% inflation target over the medium term. However, it now places greater emphasis on responding forcefully or persistently in case of sustained deviations in either direction. This is a departure of the 2020-2021 statement, which focused more on avoiding (too) low inflation. The ECB acknowledges that geopolitical and economic fragmentation, increasing use of AI, demographic change and the threat to environmental sustainability makes the inflation environment more uncertain and potentially more volatile. To account for this, the ECB will use scenario and sensitivity analyses in addition to the baseline. The central bank in pursuing its inflation goal keeps all monetary policy tools currently available in the toolkit, including negative rates, asset purchases and forward guidance. Their use, however, will be subject to a proportionality assessment to ensure flexibility and agility.