In focus rest of the week
In the US, the ADP private sector employment report and ISM manufacturing data for March are set to be released. February’s ADP report showed a gain of 63k private sector jobs. Weekly data highlighted a recovery, with employers adding an average of 10k jobs per week through early March. However, this momentum weakened towards the end of the period, indicating a potential slowdown in job growth. Meanwhile, February’s ISM manufacturing report revealed a sharp rise in the prices index to 70.5, the highest since June 2022, driven by increased imports amid stagnant domestic production. For March, it will be interesting to see if the ISM data reflects any effects of the Iran conflict, particularly regarding rising input costs.
We again have speeches from ECB (Cipollone) and Federal Reserve (Barr and Musakem)
Today’s Swedish PMI for March will be the first indicator to reflect the impact of the US-Israel-Iran war, as the NIER-indicator was collected too early. Last month’s strong PMI at 56.1 highlighted robust production and employment. For March, focus will be on the price component, following increases seen in preliminary euro area, UK, and US data.
On Friday, key US labour market data will be released. We project non-farm payroll growth at +30k, below consensus, with the unemployment rate rising to 4.5% and average hourly earnings increasing by +0.3% m/m SA. Recent indicators, including declines in daily job postings and weekly private sector employment growth, point to a softer labour market.
Economic and market news
What happened overnight
US-Iran tensions remain high despite signs of possible de-escalation. President Trump signalled a possible end to the US-Iran war within weeks, stating the US could leave without a formal deal, while Secretary of State Rubio hinted at potential talks with Tehran. Iran’s president expressed readiness to halt fighting if assured of no further attacks, though its foreign minister warned of prolonged conflict. Asian markets rallied on hopes of de-escalation as questions remain over Washington’s strategy. Wednesday night, Trump will address the nation regarding Iran.
Japan’s Q1 Tankan survey revealed a rise in large manufacturers’ sentiment to its highest level since Q4 2021, reflecting resilience in the sector despite challenges like rising energy costs and a weaker yen. Sentiment among large non-manufacturers held steady signalling stability in services. However, record corporate inflation expectations and surging fuel costs from the Iran war raise risks. Markets may focus on whether these factors push the Bank of Japan towards a rate hike at its upcoming meeting.
In China, RatingDog PMI fell to 50.8 in March from February’s 52.1, missing forecasts of 51.6. While growth continued for a fourth month, expansion slowed, with export orders decelerating. Input costs rose at their fastest rate since March 2022, and output prices surged, driven by Middle East tensions, highlighting mounting inflationary pressures despite steady production and new orders.
What happened yesterday
In the euro area, March HICP inflation rose to 2.5% y/y, slightly below the expected 2.6% but up from 1.9% in February. Core inflation aligned with expectations at 2.3% y/y. The increase was driven entirely by energy inflation, which surged 6.8% m/m, the second-largest rise since March 2022. No war-related effects were visible in other components. While the report is less concerning than feared, giving the ECB some more time to “wait and see”, energy prices continue to rise. The ECB is likely to focus on April’s inflation data and forward-looking indicators before deciding on policy changes.
Meanwhile, the EU Energy Commissioner has urged member states to prepare for prolonged disruptions in jet fuel and diesel supplies, calling for coordinated actions to stabilise energy prices and address inflationary risks.
In the ECB space, officials Muller, Panetta and Rehn highlighted inflationary risks and the potential for monetary policy adjustments in response to the Iran conflict and elevated energy prices. Muller indicated that interest rates are likely to rise in the coming quarters, questioning the ECB’s 2026 inflation forecast of 2.6% as overly optimistic. Panetta stressed the need to prevent a wage-price spiral and ensure monetary policy remains proportionate. Rehn, however, struck a cautious tone, stating that a rate hike is not guaranteed and that decisions will be made on a meeting-by-meeting basis, with a focus on the medium-term inflation outlook. All emphasised vigilance against second-round effects, as euro-area inflation reached 2.5% in March.
In the US, JOLTS job openings dropped to 6.882m in February, below the consensus of 6.918m, while January was revised upwards to 7.24m. The job openings-to-unemployment ratio fell to 0.9, signalling weaker wage growth in the next six months as workers’ bargaining power diminishes. Hiring slowed, while involuntary layoffs edged higher, offering overall dovish signals for the Fed. Meanwhile, the Conference Board’s March consumer sentiment unexpectedly improved, driven by a stronger assessment of the current situation. However, future expectations weakened as average inflation expectations rose to 6.2% from 5.5%, reflecting recent fluctuations in petrol prices.
In the Fed space, Kansas City’s Schmid warned that rising energy prices could have a lasting impact on inflation, already near 3% before the Iran war. He stressed the need for policy measures to anchor expectations, highlighting risks to both headline and core inflation. While growth impacts may be modest, Schmid’s focus on inflation aligns with speculation about potential rate hikes, contrasting with other officials’ cautious approach.
In Sweden, Riksbank’s Per Jansson reaffirmed his comments from the Minutes, noting that low inflationary pressures provide room to tolerate modest increases without risking excessive inflation. He emphasised the importance of avoiding premature actions or falling behind the curve. His neutral stance contrasts with Thedeen and Seim’s hawkish bias, underscoring the flexibility of the mildly expansionary policy rate for potential adjustments.
Equities: Global equities were significantly higher yesterday rising 2.3%, led by the US indices with 83% of the names in the S&P500 up. S&P500 rose 2.9%, Nasdaq +3.8%, Russell2000 +3.4% and Stoxx600 +0.4%, with the latter seen in context of outperformance on Monday. Mag7 outperformed the 493, rising 4.5% and 2.2% respectively. Only the Energy and Utilities sectors declined yesterday. The positive sentiment carried into the Asian session and the futures.
FI and FX: While quarter-end flows set the tone during yesterday’s European session the renewed optimism wrt. a possible end to the Iran war has been the dominant driver in both FI and FX markets in the last 12 hours. Yields are lower across the board in both the long- and short-end of curves while CEEs, ZAR and SEK have been the outperformers in FX. Energy prices have moved considerably lower and EUR/USD is now back above the 1.15-level.
Please note that due to the Easter holidays the next edition of the Danske Morning Mail will be distributed on Tuesday, 7 April.
