Markets
US president Trump upped the ante ahead of a potentially important weekend. Trade talks take center stage and will continue to do so next week now Trump’s BBB made it through Congress. The deadline for the temporarily reduced import levies (to the 10% baseline) lapses July 9th but so far only the UK and Vietnam secured (the contours of a) trade deal. Trump started to send out letters dictating the applicable tariffs to the trade partners that haven’t from today on. According to the man himself, these vary between 10% and 70% with the upper end even being above the highest level announced on Liberation Day (50%). It’s against this backdrop and lacking inspiration from the economic calendar or from US investors (busy celebrating Independence Day) that markets are taking some chips off the table going into the weekend. European stock markets slid a little over 1% and European rates ease a couple of basis points. Bunds marginally outperform vs swap with net daily changes varying between -0.4 bps (30-yr) and -3 bps (2-yr). ECB’s Villeroy supported the bull steepening move with another series dovish comments. While sticking to the official guidance (“ECB is in a good position on rates”) he sees risks for an inflation undershoot increasing, particularly due to the recent euro appreciation. ECB’s Nagel ahead of the European open called for calm: the ECB mustn’t get nervous if prices would temporarily drop below 2%. He’s probably eying the more stubborn above-2% inflation measures including core and services CPI. Euro area money markets in any case aren’t expecting anything from the ECB at the July 24 meeting and rightly so. A full rate cut isn’t priced in before the end-of-year meeting in December. We’re not at all convinced. A trade deal between the US and the EU could for example quickly make those bets outdated. UK gilt yields ease around 1 bp across the curve. They slid up to 8 bps at the long end of the curve after a concerted effort by prime minister Starmer and Chancellor Reeves. They tried to calm a market concerned about Reeves’ exit and potential fiscal slippage. The former explicitly supported Reeves in her position as finance minister after failing to do so in Wednesday’s parliamentary session, leading to a 20 bps yield surge. The latter reaffirmed her commitment to the current set of fiscal rules.
FX markets are as you could have expected: dull. The dollar fails to build on yesterday’s gains, which were already limited to begin with. EUR/USD even appreciates marginally into the 1.177 area. DXY stabilizes around 97. The Japanese yen outperforms on haven flows. USD/JPY returns from 145 back to 144.4. EUR/JPY, after moving beyond the recent highs yesterday to top 170 for the first time since last year is now testing that big figure again. Sterling’s relief rally yesterday is already over. EUR/GBP bounces back to the 0.8630 area. From a technical perspective the pair faces little resistance ahead of the April high at 0.8738.
News & Views
Preliminary Czech inflation numbers for June showed inflation slowing less than expected, from 0.5% M/M to 0.3% M/M (vs 0.2% expected). Annual inflation accelerated from 2.4% Y/Y to 2.9% Y/Y, matching its second highest level since end 2023. Details showed sticky services inflation at 0.5% M/M and 5% Y/Y (from 4.9%) with goods price inflation rising by 0.1% M/M and 1.6% Y/Y (from 0.9%). Energy prices fell by 5% Y/Y (from -6.2% Y/Y) while food prices rose by 5.5% Y/Y (from 5%). Final data will be published by the Czech Statistical Office on 10 July 2025 when the CNB also shares its view on inflation numbers. Minutes of the previous meeting showed central bankers naming core inflation as a key risk given sticky services prices. CNB governor Michl yesterday reiterated that Czech rates are likely to be stable for some time while leaving all options nevertheless open. EUR/CZK initially extended its Q2 decline towards a new YtD low at 24.60.
Hungarian industrial production fell by 1.3% M/M in May, leaving output 2.6% lower compared than a year earlier. YtD, production was 4.1% lower compared to first five months of 2024. Details showed production volume decreasing in most manufacturing subcategories, like the manufacturing of electrical equipment and of food products (weakness in external demand for electric vehicles, beverages and tobacco products). EUR/HUF holds just below the 400 level with key support (YtD low) lingering around at 397.
