In focus today
In the euro area, we will receive May flash inflation data from Germany, France, Italy and Spain, covering 75% of the aggregate euro area print. The rise in inflation has so far been largely confined to a few energy components, like car fuel, and we expect energy to remain the primary driver pushing euro area HICP inflation up to 3.2% y/y in May (April: 3.1% y/y). Core inflation is also expected to edge up to 2.3% y/y (April: 2.2% y/y), though mainly driven by base effects rather than a pick-up in underlying momentum.
In Sweden, Q1 national accounts are due, where we expect growth of 0.2% q/q and 2.4% y/y, slightly better than the flash GDP estimate. Households showed signs of weakness at the beginning of the year, but recently the picture has improved, as both the monthly consumption indicator and retail sales have picked up.
In Norway, unemployment figures and retail sales data will be released. The labour market remains relatively tight and despite some tentative signs of rising unemployment, we expect the seasonally adjusted unemployment rate to hold steady at 2.1% in May (April: 2.1%). On the consumption side, households are facing stronger headwinds from lower real wage growth, slowing employment growth and higher mortgage rates, all of which will gradually dampen consumption growth. Against this backdrop, we expect retail sales to have been unchanged in April (March: -0.1%).
Economic and market news
What happened overnight
In Japan, May Tokyo core CPI (excluding fresh food and energy), viewed by the Bank of Japan (BoOJ) as a gauge for trend inflation, increased 1.6% y/y (cons: 1.8%, April: 1.9%). Markets expect inflation to re-accelerate as elevated oil prices and a weak yen keep pressure on the BOJ, with markets largely pricing in a 25bps hike to 1.0% at next month’s meeting.
What happened yesterday
In the euro area, the minutes came in on the hawkish side, with the ECB framing rate hikes as a question of not if but when. The ECB appears to be gearing up for a potential June hike, repeatedly noting that more information will be available then. Upside risks to inflation and downside risks to growth had both intensified since the March meeting, creating a “complicated policy trade-off”, though members were careful to note there was “no evidence yet of strong second-round effects”.
Also in the euro area, firms’ selling price expectations declined slightly in both industry and services in the European Commission’s May business survey, offering the ECB some relief after April’s record surge. Selling price expectations for the industry are still very elevated, though below 2022 levels, and we should therefore expect price increases on core goods. However, the decline in services expectations should give the ECB some comfort as the index has risen only marginally following the Iran war. This suggests that the energy shock is not propagating to broader services prices (at least outside of transportation services).
In the US-Iran war, Axios reported that the two sides have reached an agreement for a 60-day ceasefire extension, which would also include reopening the Strait of Hormuz to shipping, though the deal is still pending approval from both Trump and Iranian leadership. If approved, negotiators would use the extended truce to address issues such as Iran’s nuclear programme.
In oil market, Brent crude fell to USD 92/bbl after US and Iran seems to be nearing an agreement to extend the truce another 60 days. That is the lowest level since the ceasefire announcement in the start of April. Between these two announcements, Brent crude has traded well above USD 100/bbl on some days, and we see a risk that this could happen again as the situation remains fragile. Meanwhile, the US made another big draw of 9mb on its strategic reserves last week which helps contain the immediate pressure on oil prices.
In Norway, mainland GDP grew 0.2% q/q in Q1. This is marginally weaker than Norges Bank (NB) expected in the Monetary Policy Report in March of 0.4% q/q and will in isolation lower the probability of a rate hike in June. Revisions were negative as well, leaving the mainland GDP level approximately 0.45 percentage points below what NB had anticipated in Q1. We still view the May inflation figures (10 June) and the Regional Survey (11 June) as decisive for the June decision, but the figures clearly suggest that monetary policy was already restrictive ahead of the March hike.
Additionally, the Oil Investment Survey showed positive adjustments for both 2026 and 2027, though the upward revisions were smaller than at the same time last year, pointing to nominal declines of approximately 1% this year and a flat development next year. The release came in on the weak side, though it is unlikely to be a determining factor for NB’s short-term rate setting.
In Sweden, the NIER survey edged up to 99.3 in May (April: 99.2), with consumer confidence rising to 92.4 (April: 91.7) and the manufacturing index increasing to 100.5 (April: 100.0). Notably, price plans also increased, consistent with rising input prices in the PMI, supporting our view of higher inflation pressure ahead. Price plans typically lead inflation by around three months and will be closely watched, as considerable uncertainty remains around whether firms have altered their price-setting behaviour.
In the US, April core PCE came in slightly below expectations at +0.2% m/m (cons: +0.3%), causing a modest dovish market reaction with yields down and the USD broadly weaker. Real private consumption continued to grow, with consumers absorbing higher costs by drawing down savings. Notably, goods prices are becoming an increasingly important driver of core inflation. On the growth side, Q1 GDP was revised down to 1.6% q/q AR from the 2.0% flash estimate, though underlying growth remained fairly solid. Consistent with recent remarks, Fed’s Williams noted that monetary policy is “well positioned” while flagging that persistently high inflation would warrant higher rates.
Equities: Equities rebounded yesterday, driven by US. S&P 500 up 0.6% ending not far from best levels, while markets in Nordics and Europe remained sluggish. US and Asia continue to outperform, as the momentum trade in semis/memory resumed yesterday. But this was also a session of growth stock preference; companies within medtech, software and materials fared particularly well. Gains in software triggered by strong earnings from Snowflake, beating estimates, raising its outlook and on top of it all, announcing an AI deal with Amazon; thereby disproving the software-scare among investors.
The latest growth and momentum are benefitting the US sector composition more than Europe, alongside a strong macro backdrop. Along the same lines, Asian equities are rallying this morning (Nikkei 225 2.5%, Kospi 3%, Hang Seng 1%). Since the market troughed on 30 March, US equities have returned nearly twice as much as European equities (S&P 500 19% vs Stoxx 600 10%). It is a crazy outperformance, but we think this gap will continue to grow, and Europe outperforming briefly the week when the Strait of Hormuz reopen is a blip on the curve.
FI and FX: The tentative US-Iran deal to extend the ceasefire is taking centre stage this morning. That said, while oil prices have extended the decline back down towards the lower 90s USD/bbl the reaction in rates and FX markets has still been muted with e.g. interday moves in FX majors kept within +/- 1 standard deviations. More importantly, US PCE inflation yesterday contributed to sending yields lower with 30Y US Treasury yields now firmly back below the 5.00% level, the US swaps curve has bull flattened while EUR/USD FX spot is trading around 1.1640. In the Scandies, short-end rates spreads to EUR have widened for NOK but remained stable in SEK. EUR/SEK and EUR/NOK have both been relatively stable with SEK notably outperforming NOK.
. Core inflation is also expected to edge up to 2.3% y/y (April: 2.2% y/y), though mainly driven by base effects rather than a pick-up in underlying momentum.){kind=link}