Sunset Market Commentary – ActionForex

Markets

Markets today experienced some kind of an ‘interim session’ with few high profile data and no ‘new news’ on the conflict in the Middle East. US President Trump repeated that they are in the ‘final throes of what will be a very, very good deal’ and that this might become concrete in the next days. However, markets for now understandably take a wait-and-see modus, with technical trading dominating today’s price action. Both ADP private payrolls (avg weekly change over the 4 weeks to 23 May at 29k) and US trade balance data (trade deficit at $55.9 bln; with a modest rise for both imports and exports) didn’t bring any market moving news. US NFIB small business confidence eroded further (95.3 from 95.9, the weakest level since September 2024). US yields are easing 2-3 bps across the curve. Oil returning near recent lows (Brent at $92) might be a small supportive factor for US bonds. However, tomorrow’s US May CPI data (expected at 0.5% M/M and 4.2% headline and 0.3% M/ and 2.9% for core) probably might be the more important factor to guide the short-term momentum on US interest rate markets. In similar technical trading, German yields show a similar pattern (2-y -3 bps; 30-y -0.5 bps). A 25 bps rate hike at Thursday’s ECB meeting is fully discounted. In the current environment, one can expect the ECB to remain cautious on giving any guidance on (the pace of) further steps. Even so, markets will be keen to hear any hints/assessment on the bank’s reaction function regarding back to back hikes if necessary. Equity markets today entered calmer waters with the EuroStoxx 50 regaining 1%. US indices, including the Nasdaq also again opened in green. Even so, the likes of the Nasdaq (+1%) and the S&P 500 (today +0,8%) still have some way to go to erase recent ‘losses/correction’. In this respect, we also keep a close eye at the reaction of equity markets in case of elevated/higher than expected US inflation data. On FX, the dollar continues to make a step backward after testing/nearing some first resistance levels. For the DXY TW index the 100.21/64 area (yesterday’s top/YTD top) for now looks one step too far/high. EUR/USD also shows resilience return to the 1.1575 area after yesterday’s test of the 1.15 area. However, also here we stay cautious ahead of tomorrow’s US CPI data. USD/JPY is still paralyzed near 160. Given day’s relative global USD softness, this isn’t a convincing sign for the yen.

News & Views

Sub-par Hungarian inflation paved the way for a near-term (potentially June) rate cut by the central bank. Headline prices stagnated on a monthly basis in May, allowing the annual figure to decelerate from 2.1 to 1.8%. That’s defying expectations for a quickening to 2.2% and below the lower bound of the Hungarian central bank’s 3% +/-1 ppt tolerance band. Core inflation fell by -0.02% m/m and to 1.94% y/y. Among the categories mentioned by the Hungarian central statistical office, food prices dropped by 0.3% m/m. Electricity, gas and other fuel prices also fell, by 0.8%. That offset service prices rising by 0.2% and clothing and footwear by 0.8%. Hungarian money markets had been pricing in rate cuts by the central bank for some time now amid a series of below-consensus CPI prints. Hungarian swap yields nevertheless slip around 10 bps across the curve. The forint implicitly approves such a central bank move by staying resilient over the last couple of weeks. EUR/HUF is currently trading around 355.3, among the HUF-strongest levels in more than four years.

The Japanese newspaper Nikkei reported that the Bank of Japan at its June meeting will discuss halting its quarterly reductions to its bond-buying program from fiscal 2027 (starting in April) onward. Sources told media outlet something similar, though added that the decision would be a split one between those that want to focus on soothing investor nerves and others that find it necessary to continue the taper process to reduce the BoJ’s large balance sheet. The BoJ has been reducing its bond holdings since 2024 under governor Ueda and is trimming the monthly buying pace by JPY 200bn each quarter. The current buying pace of JPY 2.1tn already allows for a natural run-off (some JPY 50tn per year) because of the sheer amount of bonds maturing from the bloated portfolio. The sources say this offers the BoJ a window for a taper pause, adding that the central bank could keep the current buying pace open-ended. Apart from the balance sheet debate, it’s all but certain that the BoJ will hike its policy rate to 1% next week. Markets price in another move by year-end.