HomeContributorsFundamental AnalysisSunset Market Commentary

Sunset Market Commentary


Counting down to the key US CPI release, markets clearly positioned for an outcome that kept the door open for a Fed rate cut post summer holidays. US yields already declined about 2.0-3.5 bps in the run-up to the data release. US inflation indeed printed on the softer side of expectations. Headline inflation eased to 0.3% M/M and 3.4% Y/Y (was 0.4% and 3.5% in March). Core inflation as expected slowed to 0.3% M/M and 3.6% Y/Y (was 0.4% and 3.8%). Services inflation softened to 0.4% M/M from 0.5%, as housing related costs slowed (0.2%). The super-core services inflation excluding energy and housing related services eased, but stays rather sticky at 0.42% M/M (from 0.65%). Inflation optimists can see some improvement in today’s report, but it probably won’t instantaneously change the Fed wait-and-see attitude. Still US yields extended their decline after the release, currently trading between 8.5 bps (2-y) and 6.0 bps (30-y) lower in a daily perspective. The focus today was on the price data, but disappointing retail sales (0.0% M/M headline, -0.3% M/M control group) and an unexpected decline in the Empire manufacturing index released simultaneously with the CPI report joined other recent soft activity/sentiment data and added to the bond-friendly momentum. The US 2-y yield is coming within reach of the 4.70% support touched after the US payrolls earlier this month. The 10-y yield even is at risk of breaking the 4.37% support (38% retracement rise since December low to end April top). A Fed September rate cut is now again almost 100% discounted. Bunds outperformed Treasuries this morning and still kept an advantage even after the US CPI release with yields currently declining between 7.5 bps (2-y) and 11 bps (10-y). ECB’s Villeroy today reconfirmed the ’consensus’ within the ECB to start cutting rates in June as the ECB has grown sufficiently confident that inflation will reach its 2.0% target (by next year). The easing of monetary conditions supports further equity gains. The EuroStoxx 50 (+0.2%) is nearing the April top. The S&P 500 (+0.55%) and the Nasdaq at the open even jumped to new all-time record levels. The decline in global yields reinforced the USD correction. DXY at 104.5 tested the post-payrolls low. Despite interest rate differentials moving slightly in the disadvantage of the euro, EUR/USD extended its break beyond 1.0811 resistance (currently 1.086). Even the yen rebounds with USD/JPY falling to the 155.5 area (open 156.42). A global easing of financial conditions also causes a slight sterling outperformance against the euro. EUR/GBP eases to 0.8585.

News & Views

Headline Swedish inflation accelerated from 0.1% M/M in March to 0.3% in April. Markets expected a slightly faster price gain (+0.4%) resulting in a slightly stronger deceleration in Y/Y price growth (3.9% from 4.1%). The monthly change in April was mainly due to higher prices of recreation and culture. Also, there were price increases in restaurant- and hotel visits. Actual rentals and the costs of owning a home increased in April. There were lower electricity prices and lower fruit prices. The Swedish Riksbank’s preferred price gauge, CPIF inflation using fixed interest rates) showed a similar, smaller than feared, 0.3% monthly increase with the Y/Y figure rising from 2.2% to 2.3% instead of 2.4% (consensus). Today’s inflation numbers support the Riksbank case to gradually lower the policy rate further after an inaugural 25 bps rate cut (4% to 3.75%) last week. Swedish money markets attach an 80% probability to a second move in August. The Swedish krona at EUR/SEK 11.68 was unmoved by today’s figures.

The European Commission projects 0.8% in the euro area this year in its Spring forecasts. GDP is forecast to accelerate to 1.4% in 2025. Growth is expected to be largely driven by a steady expansion of private consumption, as continued real wage and employment growth sustain an increase in real disposable incomes. A strong propensity to save still acts as a drag. Investment growth is softening dragged down by the negative cycle of residential construction. A rebound in trade is set to support EU exports, but is largely offset by an acceleration in imports. New inflation forecasts suggest a deceleration from 5.4% last year to 2.5% this year and 2.1% in 2025. Disinflation is set to be mainly driven by non-energy goods and food, while energy inflation edges up and services inflation declines only gradually, alongside moderation in wage pressures.


US 2-y yield nearing 4.70% post-payrolls’ support as ‘soft’ US data rekindle bets for September Fed rate cut.

EUR/SEK: Swedish krone doesn’t decline on faster than expected disinflation as global financial conditions stay favourable.

USD/JPY: yen rebounds as revival of Fed rate cut bets is pushing USD in the defensive.

S&P 500: Easing of global financial conditions propels S&P 500 (and Nasdaq) to now record levels.

KBC Bank
KBC Bankhttps://www.kbc.be/dealingroom
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

Featured Analysis

Learn Forex Trading