In focus today
In Germany, we await the final April inflation data, which includes all the sub-categories of the CPI index. These will be particularly interesting as core services inflation rose much more than expected in April and will allow us to see if it was mainly due to the timing of Easter or a reflection of a broader pic- up in services momentum. We expect it was mainly due to Easter and the price pressures should remain well-behaved as wage growth is declining.
In Sweden, we receive important economic data, starting with inflation figures. Core inflation came in a tenth lower than expected according to the preliminary figures last week. Today’s details provide important clues about how widespread price pressure is, which is important considering high price plans and high inflation expectations. Next is the Riksbank’s minutes, where we get a better picture of the discussions when the Riksbank made a small opening towards easier monetary policy last week. The market is pricing 50/50 for a June cut, which means the minutes are unusually interesting. According to our assessment, neither the press release nor Thedéen, Governor of the Riksbank, sent any signals that align with a cut in June. Today, we will see how the rest of the board reasons.
Fed’s Waller and Daly are also set to speak during the day.
Economic and market news
What happened overnight
In Japan, wholesale inflation for April came in at 0.2% m/m and 4.0% y/y, as widely expected. Firms continue to raise prices for food and beverages as well as agricultural goods. The figures present a mixed picture for the Bank of Japan, which faces ongoing domestic price pressures while reporting minimal impact seen from the US ‘Liberation Day’ tariffs, aided by a 90-day pause, as many firms still need to finalise a pricing strategy.
In the trade war, the UK-US trade deal has been criticised by China for potentially excluding Chinese products from British supply chains. The agreement, which includes security requirements for steel and pharmaceuticals, complicates London’s efforts to rebuild relations with Beijing, as reported by the Financial Times. China’s foreign ministry has emphasised that international cooperation should not harm third-party interests.
What happened yesterday
In the US, April CPI data surprised modestly to the downside, with headline inflation at 0.22 m/m SA (prior: -0.1%) and core terms at 0.24% m/m SA (prior: 0.1%). There was little evidence of tariff-driven price pressures, with slow core goods inflation and a slight decline in food prices. Energy and shelter inflation exceeded expectations, while core services inflation, excluding shelter and healthcare, stayed negative, indicating subdued price pressures despite the trade war. This environment supports the Fed’s wait-and-see stance, and EUR/USD reversed course modestly higher. Read more in Global Inflation Watch – Realized price pressures remained under control in April, 13 May.
Ahead of the CPI release, the April NFIB small business optimism survey continued to show weakening sentiment. Firms’ real sales growth expectations declined, and capex plans fell to the lowest level since April 2020. The price plans index, often a reliable CPI leading indicator, fell modestly to 28 from 30, nearing pre-Covid levels. Overall hiring plans remained weak. While this soft data paints a gloomy picture, it is somewhat outdated due to recent tariff changes.
In the UK, March labour market data came in a mixed bag, resulting in a muted market reaction. The unemployment rate increased as expected to 4.5% from 4.4%, while regular wage growth slightly underperformed expectations at 5.6% 3m y/y. Notably, private sector wage growth also fell short of expectations at 5.6%, which is also below the Bank of England’s forecast. We will closely monitor the April labour market data where a large amount of the wage negotiations take place and next week’s, with focus on service inflation.
In Germany, the ZEW showed a continued weak assessment of the current economic situation and a partial rebound in the future expectations index. Following a large decline in expectations to -14 in April, expectations partially rebounded to 25 in May, influenced by less negative US trade signals. The rebound may strengthen further due to the recent US-China trade agreement, as some responses might not fully reflect the deal, given the submission deadline. The assessment of the current situation was broadly stable, slightly declining to -82. Despite this, the data indicates a modest improvement in German activity compared to the past six months, though a clear rebound is not evident. This aligns with recent production and PMI data, pointing to subdued growth in the German economy.
In geopolitics, President Trump announced the lifting of US sanctions on Syria, following encouragement from allies in the Middle East. The policy shift aims to support the new Syrian government and facilitate its economic recovery, aligning with broader efforts to strengthen diplomatic and economic ties in the Middle East. As part of his four-day Gulf tour Trump, is set to visit Syria’s new leader, Sharaa, today.
We will also continue to keep an eye out for the tentative Russia-Ukraine talks in Istanbul scheduled for tomorrow. Reuters sources suggested yesterday that from the US side at least Secretary of State Marco Rubio as well as special envoys Steve Witkoff and Keith Kellogg would join the talks. Ukraine has communicated that Zelenskiy would only attend if Putin is also present, which the Russian side has not yet confirmed.
Equities: Yesterday saw a continuation of Monday’s big rally. US outperformed Europe, with S&P 500 up 0.7% and Nasdaq 1.4% compared to a modest 0.1% rise for Stoxx 600. S&P 500 is now less than 4% off its all-time high. Risk-on evident in both regions though, with investors showing a big preference for cyclical stocks vs defensives. US tech and overall retail was in favour, in particular helped by positive AI headlines and cooler inflation. Mostly buoyant mood in Asia as well, with Chinese equities outperforming on solid earnings reports.
FI&FX: Despite risk-appetite remaining solid during yesterday’s session we saw the USD trade on the back-foot while AUD and NZD continued Monday’s rally. In the Scandies neither EUR/NOK nor EUR/SEK did much. In rates space yields edged marginally higher across currencies – but overnight we have seen Majors FI catch a slight bid. BTP-Bund spreads continue to tighten while treasuries have given up slight performance vs the swap.
