Sunset Market Commentary

Markets

UK Q4 2025 growth and December production this morning again painted a sluggish picture on activity at the end of 2025. The UK economy ‘expanded’ 0.1% Q/Q, equal to the Q2 pace. Consensus expected 0.2%. Household consumption (0.2% Q/Q) and government spending (0.4%) contributed positively to growth. Gross Fixed capital investment declined (-0.1% Q/Q) with especially a 2.7% Q/Q decline in business investment catching the eye. Net exports (exports -0.6% Q/Q, imports +0.8%) also contributed negatively. In 2025 as a whole, the UK economy grew by 1.3% Y/Y. From a production point of view, manufacturing grew a solid 0.9%, agriculture added 0.3%. Construction activity contracted (-1.2%) while services stagnated. The monthly December GDP indicator stranded at a 0.1% monthly gain. The market reaction was as lackluster as the data. UK yield are easing 1-2.5 bps across the curve. The UK currency over the previous two days tried two brief attempts to rebound as uncertainty on the political fate of PM Starmer eased. However, for now this tentative rebound soon met sterling selling interest. EUR/GBP struggles sustainably settle below the 0.87. barrier (currently 0.8705).

US trading was captured in some kind of interlude between yesterday’s payrolls release with the yearly revision and tomorrow’s January US CPI report. Stronger than expected January job growth (130k) and the unemployment rate declining to 4.3% eased building pressures for the Fed to frontload further easing. That said, average monthly job growth last year slowing to 15k keeps the debate alive on the Fed’s reaction function in a context of ‘jobless growth’. The weekly jobless claims published today did little to bring any clarity (decline to 227k from a high 232k last week, but above 223k consensus). Bond yields yesterday soon reversed part of the initial post-payrolls rise and today are further ceding between 1 bp (2-y) and 3.5 bps (30-y). The 2-y yield struggles to regain the 3.5% level. The 10-y (4.16%) holds below the 4.2% reference. Later today, the US Treasury will sell $25 bln of 30-y notes. German yields are changing less than 1 bp across the curve. The dollar is going nowhere. DXY trades marginally lower near 96.8. EUR/USD gains a few ticks (1.1885). The yen rally is taking a breather. USD/JPY came within reach of the YTD low just above 152 (rumours at that time on the US and Japan discussing coordinated interventions), but the finally some consolidation kicked in (currently 153.3). The little news/low volatility environment today again supports equities. The EuroStoxx 50 (+0.8%) intraday touched a new all-time top just below 6100. In the US, the Dow Jones is only a whisker away from an all-time record (currently 50400; +0.55 %).

News & Views

Hungarian inflation quickened less than expected in January. Monthly price growth amounted to 0.3%, up from 0.1% in December but halve the pace expected. The annual reading plunged to 2.1% from 3.3%, below the central bank’s (MNB) 3% midpoint target for the first time in five years as well as the slowest since 2018. The MNB’s core measures also showed some (steep) declines with core CPI ex. indirect taxes falling to a similar multiyear year low of 2.6%. Services inflation, a focal point of the central bank, decelerated to 5% from 6.8%. CPI is kept artificially lower through the government’s profit curbs though, which have been extended to end-May as per ministerial decision today. Either way, MNB governor Varga at last month’s post-meeting press conference said that annual corporate repricing at the start of the year would be “decisive” for the central bank whether or not to restart its easing cycle (from 6.5% currently). Today’s numbers make such a rate cut at the February meeting ever more likely, particularly against the backdrop of a resilient forint. The HUF is showcasing that again today with losing only marginal ground both after the CPI release and after an EU court opinion suggested to scrap the release of more than €10bn in funds for the country. EUR/HUF trades around the 380 barrier. Swap yields tumbled up to 7 bps.

ECB board member Piero Cipollone today said that the central bank is preparing to broaden access to its euro backstop facility to more central banks outside the euro zone. Today just eight national banks have access to these repo lines, called Eurep. By expanding access, the ECB aims to reduce euro funding market disruption in times of stress. But it’s also a tool long favoured by ECB president Lagarde to boost the common currency’s global reach, particularly in the current circumstances where the US dollar’s status is being reassessed by investors.