Sunset Market Commentary

There will be no KBC Sunset from Monday August 3 until Monday August 10. We resume our publication on Tuesday August 11.

Markets

The EMU flash CPI release for the month of July showed a modest reacceleration in prices. Headline CPI rose 0.2% M/M and 2.9% Y/Y (from 2.8%). Core CPI (ex-energy, food, alcohol and tobacco) rose slightly more than expected (0.0% M/M, but up from 2.4% Y/Y to 2.5%). Energy prices add 2.4% M/M to be up 10.0% Y/Y. Services inflation at 1.1% M/M and 3.3% Y/Y also remain rather elevated. On the soft side, prices of non-energy industrial goods declined 2.2% M/M to be 0.9% higher compared to the same month last year. As such, the report shouldn’t come as a big surprise for the ECB (or markets). However, combined with solid Q2 growth data published yesterday and ongoing uncertainty on any solution to the conflict in the Middle East, keeping energy prices at elevated levels (Brent $90 p/b, TTF gas contract near €60 p/Mwh) it should keep the ECB on some kind of alert modus. The data at least also caused European interest rate markets to reverse yesterday’s (mostly US inspired) steeping move. The German yields curve bear flattens with the 2-y rising 6.0 bps and the 30-y rising 30 bp. The EMU 2-y swap yields now again trades north of 3.0%. EMU money markets again discount a 90% of a September rate. US interest rate markets in some way apparently also have digested the nervousness post Fed Chair Warsh’s press conference earlier this week. The US yields curve also corrects on the recent steepening move (5-y +6.0 bps; 30-y +5.0 bp). The focus of US investors now can turn to the early month US eco update next week including the ISM’s and labour market data (ADP, JOLTS, jobless claims & Payrolls). Of course, the Fed focus is on inflation. Still it will be interesting to see the market reaction, especially in case of solid US activity data. Interestingly, two of the dissenters at this week’s meeting (Cleveland Fed president Beth Hammack & Minneapolis Fed president Neels Kashkari) in a statement elaborated on the reasons why they already wanted to raise the policy rate at this month’s meeting. On other markets, equities try to recover a bit further from recent AI/chip rout. EuroStoxx 50 (+0.2%, Nasdaq +0.3%).

The rise in EMU yields at least didn’t help the euro. EUR/USD after trading north of 1.15 late yesterday and this morning again slips below this big figure (1.148). However, at least for some part the yen might be to blame. Yesterday’s broader USD decline to some extent mirrored spill-over effects for the USD/JPY set-back on suspected yen interventions from Japanese authorities to support the yen. Given a rather hawkish assessment at this morning’s BOJ meeting, including similar comments from BOJ governor Ueda, USD/JPY during the session in nervous trading hovered near 160.

News & Views

The flash estimate of the Polish Consumer price index published by Statistics Poland today, indicates that CPI inflation in the country in July rose 0.8% M/M and 3.0% Y/Y. The outcome was close to expectations. Indices for some subcategories were also published. Food prices declined -0.8% M/M and prices were also 0.2% lower compared to the same month last year. Prices of electricity and gas rose 0.1% M/M and 4.0% Y/Y. Prices for fuel for personal transport equipment rose 13.9% M/M and 15.8% Y/Y as some measures to cap fuel prices for consumers ended in June. At the same time, prices again rose in the wake of the renewed tensions in the Middle East. At least headline inflation is now again above the 2.5% inflation target midpoint of the National Bank of Poland. This outcome at least complicates governor Glapinski’s intentions as he indicated to consider proposing a rate cut after the summer break. However, given the high degree of uncertainty, other members of the MPC recently gave more cautious comments. At least today, the Polish 2-y swap yields didn’t change much (4.14%). After rebounding yesterday, the zloty today again lost some modest ground (EUR/PLN 4.31). As such the pair still trades near the 4.30/31 area, the top of a band that capped trading in the pair during most of 2025 and till early this month.