KBC Sunset Market Commentary 31/07/2025 via Trader Talent

KBC Sunset

Thursday, July 31, 2025

Daily Market Overview

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Markets

• The three biggest Euro area economies released July inflation numbers today. French prices rose 0.3% m/m to be up a June-matching 0.9% on a yearly basis as energy was still heavily weighing on inflation. Italian inflation meanwhile dropped 1% on a monthly basis with the year-on-year print easing from 1.8% to 1.7%. Both countries nevertheless slightly topped expectations. Germany on the other hand missed them by a slight margin with the harmonized price index adding 0.4% m/m and 1.8% y/y, the first sub 2% reading in 10 months. Taken together and considering yesterday’s Spanish outcome (2.7% vs 2.6% expected), risks if any, for tomorrow’s European inflation figure, are marginally tilted to the upside. The bar is set 1.9% for the headline series (down from 2%) and 2.3% for the core gauge (same as in June). The near-consensus data had little impact on markets. The front end of European yield curves left the early lows of the day in the wake of the French release and now trade around 1 bp higher in the German case. Money market bets for additional rate cuts by ECB were lowered and are currently no higher than 70% (March 2026). In the US, government officials including Treasury Secretary Bessent are lashing out at the Fed for not cutting rates at yesterday’s meeting again. The USTS said to expect a candidate for his successor by the end of the year. He also expects current chair Powell to leave the board once his terms at the helm of the Fed ends in May 2026, saying that there “will be two seats opening up on the Fed board”. Fed governor Adriana Kugler’s seat is the other one as her term ends in January 2026. And yet, today’s, be it mostly-second tier, US eco data appear to vindicate the Fed’s approach of a wait and see. June personal income was slightly better than expected while spending picked up 0.3% from an upwardly revised zero-growth month of June. June PCE’s meanwhile came in higher than expected with the headline gauge rising 0.3% to 2.6% y/y and the core number adding 0.3% to 2.8%. The May figures also got a bump to 2.4% and 2.8% respectively. And weekly jobless claims printed a low 218k, bringing the 4-week MA down to 221k, the lowest since mid-April. US yields briefly ticked higher but that died out soon. Net daily changes vary between -1.2 (2-yr) and -2.5 bps (30-yr), returning some of the bps gains following yesterday’s Fed meeting.

• The dollar recovery of the last couple of days is running into resistance today but losses against G10 peers are limited. EUR/USD tried to keep the 1.1431 support alive but for now fails in doing so (1.1417). DXY remains just inches way from the symbolical 100 barrier. The Japanese yen initially welcomed the beefed up BoJ inflation forecast this morning as being one step closer to a rate hike. But then governor Ueda poured cold water on those bets. He stressed that the US-Japanese trade deal didn’t suddenly lift all of the trade fog and that uncertainty remains very high. USD/JPY turned losses into solid gains that push the pair north of 150 for the first time since Trump’s April 2 Liberation Day.

News & Views

• Polish inflation eased less than anticipated in July. Monthly prices rose 0.3%, bringing the yearly reading down from 4.1% to 3.1% vs 2.8% expected. Details are limited but showed that a -0.6% m/m decline in food and non-alcoholic beverages was overcompensated by a 1.1% increase for energy (electricity, gas and other fuels) and a 3.5% uptick for personal transport equipment fuels. The National Bank of Poland in its early July meeting had projected that inflation would fall below the upper bound of the 2.5% +/- 1 ppt tolerance range and decided to lower the reference rates by 25 bps as a result to 5%. Polish money markets are expecting several more rate cuts this year to around 4.5%. The Polish zloty’s reaction was muted with EUR/PLN trading at an unchanged 4.28 level today.

• Hungarian prime minister Orban announced a housing subsidy for public servants of HUF 1mln. The pledge comes as the PM struggles in the opinion polls going into parliamentary elections next year and follows a series of other spending measures including big income tax cuts and a subsidized mortgage scheme that increasingly pressure an already strained budget. Despite the new fiscal incentives, Orban’s cabinet remains committed to keep the budget deficit at 4.1% this year.