In focus today
This morning, Danske Research hosts a webinar on the US-China outlook following last week’s trade deal.
The UK CPI inflation data for April is set to be a significant release, particularly for the BoE, as it has historically led to notable market reactions. Consensus anticipates services inflation to increase to 4.8% y/y (prior: 4.8%), slightly below the BoE’s expectation of 5.0%.
Economic and market news
What happened yesterday
In euro area, consumer confidence increased more than expected in May to -15.2, up from -16.0 and surpassing the consensus of 16.6. This increase is likely due to positive shifts in US trade policy. While confidence has improved, it remains low, matching last year’s levels when the economic situation was worse. It is important to view these figures cautiously, as various positive elements support private consumption. Rising wages, decreasing inflation, lower interest rates, increasing housing prices, and a strengthening labour market are expected to boost spending, even if low consumer confidence suggests otherwise.
In Denmark, GDP contracted by 0.5% q/q in Q1, mainly due to the pharmaceutical industry, while the rest of the economy grew by 1.0%. Despite this downturn, growth will reach 1.6% for 2025 even if there is zero q/q growth for the rest of the year, and the government’s 3% growth expectation for this year remains attainable. Consumer confidence fell to -18.4 in May (prior: -17.0), reflecting increased negativity about the current state of the economy. However, despite low consumer confidence, factors such as wages, decreasing inflation, lower interest rates, rising house prices, and a strong labour market may support spending and overall economic growth.
Equities: Equity markets declined yesterday, taking a pause after a prolonged period of gains – although, to be honest, the moves were marginal. What is far more interesting is the underlying dynamic playing out within equities, sectors, regions, and across asset classes. For the fourth consecutive session, defensive stocks outperformed cyclicals. US equities underperformed global peers, and the dollar weakened alongside a steeper yield curve in the US – all pointing to a market grappling with elevated uncertainty around US fiscal policy and the role of Treasuries and the dollar as portfolio diversifiers and safe havens. This morning, we are seeing some continuation of yesterday’s trends: most Asian equity markets are trading higher, European equity futures are marginally higher or flat, while US futures are modestly lower. The dollar continues to weaken.
FI&FX: The dollar has weakened overnight with EURUSD now trading around 1.1330 and where safe haven currencies JPY and CHF have gained. Brent oil is c.1% higher, above 66 USD/barrel on CNN reports that Israel may strike Iran’s nuclear facilities. Treasury yields are trading higher with the 30Y close to the 5.00% mark and 10Y UST at 4.51%. We expect long-end UST term premia to continue trending higher.
