Sunset Market Commentary

Markets

Belgium and Spain kicked off the upcoming flurry of national member state HICP releases which culminate in the euro area print come Wednesday. Belgian (harmonized) CPI eased from 4.1% in May to 3% in June. Spanish prices rose by 0.6% m/m, quickening from May’s 0.1%. That resulted in annual inflation unexpectedly matching May’s 3.6% instead of dropping to the 3.4% consensus view. Core inflation (non-harmonized) fell from 3% to 2.9%, slightly below the 3% estimate. It’s too early to determine the balance of risks for the euro area wide figure with heavyweights France, Germany and Italy due to report tomorrow. We did see the euro coming off the EUR/USD 1.1415 intraday highs after the Spanish release, be it in technically irrelevant trading. The pair is currently changing hands around that 1.14 big figure, extending a minor recovery that started last Thursday. The US dollar in general is marginally on offer today, losing against most peers. USD/JPY is one of the exceptions, nudging higher again towards the 2024 multi-decade high just shy of 162. Markets are testing Japanese (FX) policymakers. They should be wary of July 3, when US markets are closed in observance of Independence Day. Japan has shown appetite for interventions in liquidity-thinned trading circumstances – assuming the 162 barrier doesn’t break sooner. The pound is enjoying a honeymoon period in between outgoing PM Starmer and his successor Burnham. EUR/GBP nears last week’s lows and is on track for the weakest closing level since August 2025. Burnham is likely to take over July 17th. He used his first major speech since securing his seat in parliament to promise change. For one, he intends to transfer some business from London’s Downing Street 10 to Manchester, dubbed No. 10 North. This power redistribution across the country should decentralize public finances and push regions to drive their own growth agendas. Burnham seeks to safeguard critical manufacturing and production capabilities, including in steel, defense, energy, food and farming and promised the biggest house-building since the postwar period. “To reduce the welfare bill in a way that is fair and lasting” was probably aimed at comforting markets that not all is borrow-to-spend. He also reaffirmed his commitment to the fiscal rules that current Chancellor Reeves has implemented. UK gilts shrugged with yields trading unchanged on the day. Rates in other (core) regions including in the US and the euro area trade with changes smaller than 2 bps. That stoicism isn’t surprising given the backloaded eco calendar this week. Stock markets kick off the week in good spirits, especially in the US. The tech-heavy Nasdaq has been prone to some (end-of-quarter) rotational moves but eyes a 1.5% recovery today.

News & Views

Belgian inflation decreased by 0.3% M/M in June. The most significant price increases in June were registered for electricity (+2.5% M/M), private rents (+0.7%), package holidays (+0.9%) and natural gas (1.5%). However, motor fuels (-6.4%), plane tickets (-21.6%), holiday villages and campings (-6.2%), and clothing (-1.2%) have had a decreasing effect on the index. Headline CPI slowed from 4.08% Y/Y in May to 3.4%. The first inflation estimate according to the European Harmonised Index of Consumer Prices (HICP flash estimate) amounts to 3% in June 2026. Core inflation, which excludes energy products and unprocessed food, stood at 3.04%, down from 3.59% in May. Services inflation went from 5.88% to 5.1% while food inflation slowed from 1.2% to 0.06%.

Hungarian PM Magyar warned that the country’s budget deficit is now expected to exceed 7% of GDP, even after securing EU funds. Without them, that would have likely been above 8% of GDP. The new government claims that huge pre-election spending wasn’t fully reflected in the budget. The previous Orbán government had an official 3.7% deficit target which was later revised to 5% of GDP. The Hungarian government will conduct a full audit of public finances and submit a revised budget by the end of August. In light with meeting Maastricht criteria for potential euro adoption by 2030, they’ll have to put in place significant medium term consolidation plans. The Hungarian forint loses some ground today with EUR/HUF rising from 353.50 to 355.