In focus today
We anticipate the ECB will keep the deposit rate steady at 2.00% today, consistent with consensus and market expectations. Attention will be centred on signals, as we expect Lagarde to maintain flexibility by keeping the option of summer hikes open to anchor inflation expectations, while refraining from committing to any specific action. We expect the ECB will raise policy rates by 25bp in both June and July. On the strategy side, we favour playing the move for lower short-end swap rates, highlighting the negative growth effects from the negative supply shock. For details, see ECB preview – No rush before summer hikes, 24 April.
In the UK, the Bank of England is widely expected to hold the bank rate at 3.75%, with market pricing indicating an 86% probability of no change. Read more in Bank of England Preview – On hold amid solid macro data, 24 April.
In the euro area, we expect the flash April HICP data to rise to 2.9% y/y from 2.6% y/y due to energy prices while core inflation is expected to decline to at 2.2 % y/y. Data from Germany and Spain released yesterday revealed no significant changes to the monthly momentum of core inflation, so we are still only seeing “first round” effects of the oil shock, which supports the ECB’s “wait and see” approach today.
In the US, the main focus will be on Q1 flash GDP data. We forecast growth at +1.7% Q/Q AR, somewhat below consensus of 2.3%. March PCE inflation data will also be released at the same time.
We also get the flash Euro Area Q1 GDP data today. We forecast GDP rose 0.3% q/q in line with the ECB’s baseline and adverse scenarios. Furthermore, we received the unemployment rate for March which we expect remained at 6.2% which should not be affected by the war in Iran.
In Norway, the labour market appears to remain tight, with relatively many vacancies and moderate but positive employment growth. Hence, we expect that the unemployment rate (SA) from NAV was unchanged at 2.1%. There is a risk that the small increase we saw in the number of unemployed in March was due to Easter being somewhat earlier than last year, in which case the unemployment rate could fall to 2.0%.
Economic and market news
What happened overnight
In China, the official manufacturing PMI dipped slightly to 50.3 in April (March: 50.4) but remained in expansion territory, driven by strong export orders as buyers stockpile amid Iran war concerns. Meanwhile, the private RatingDog Manufacturing PMI rose sharply to 52.2 (March: 50.8), reflecting robust external demand. However, rising energy prices and weak domestic consumption pose risks to sustained growth. The non-manufacturing PMI fell into contraction at 49.4, underscoring persistent fragility in services and construction sectors.
What happened yesterday
In the US, the Fed held rates steady at 3.50-3.75% as expected. Miran supported a quarter-point rate cut, while Kashkari, Hammack, and Logan opposed the inclusion of an easing bias in the statement. All three have been in the FOMC’s hawkish camp for a while now, as they vocally opposed also the final rate cut last fall.
Powell announced he will remain as a Fed Governor past his term as the Chair but did not specify for how long. This is hawkish on the margin, as it blocks Trump from nominating a potentially more dovish replacement, and means that Miran will not continue as a Governor in June. Yields rose and the USD strengthened, as markets erased bets for further rate cuts, and instead price in a slim chance of rate hike in 2027. We still call for two more rate cuts in September and December, read more in Fed review: Not quite done yet, 29 April.
Separately, the Senate Banking Committee advanced Kevin Warsh’s nomination to succeed Powell as Fed Chair. The Senate is expected to confirm Warsh in May.
Oil prices climbed further, with Brent crude reaching USD 126/bbl at the time of writing, toppling the recent USD 119.5/bbl high from 9 March. The increase follows reports that the US is considering military strikes to break the negotiation deadlock with Iran, intensifying concerns over prolonged supply disruptions. Market sentiment remains cautious, with Polymarket investors assigning less than a 30% probability of normalised traffic through the Strait of Hormuz by the end of May and a 45% likelihood of the US lifting its naval blockade.
In the euro area, the European Commission’s April survey revealed a significant increase in selling price expectations across all business sectors, with industry seeing its largest-ever monthly rise. Expectations remain elevated above long-term averages, bolstering the case for further ECB rate hikes. However, the relatively subdued rise in services price expectations compared to 2022 offers some reassurance. Consumers also sharply revised up their inflation expectations, with April marking the highest level recorded since April 2022.
The EU Commission adopted a temporary state aid framework allowing governments to subsidise up to 70% of extra energy costs for impacted industries, agriculture, and transport. While the measures may limit short-term consumer price increases, they risk stimulating demand and adding to medium-term inflation pressures, supporting the case for further ECB rate hikes.
In Canada, the Bank of Canada (BoC) held its overnight target rate at 2.25%, aligning with expectations and prior guidance. The BoC avoided providing clear forward guidance, acknowledging upward pressure on inflation expectations while noting that higher energy prices have yet to significantly impact broader sectors of the economy.
In Sweden, preliminary GDP figures for Q1 showed a decline of 0.2% q/q, below expectations of +0.1% q/q growth, but with strong momentum in March (+1.9% m/m). Retail sales surged 3.1% m/m and 6.2% y/y in March, driven by broad-based gains, particularly in durable goods, while February’s figures were revised lower to -0.8% m/m and 2.2% y/y. In the NIER survey for April, overall business sentiment dropped slightly to 99.0 (prior: 99.9) and inflation expectations among firms rose sharply to 2.6%, while consumer confidence weakened to 91.5 from 95.2.
Equities: Equities fell yesterday, but the decline was marginal on balance, as US tech continued to hold up relatively well. In other words, tech is still providing the floor under the market.
Some of what we saw yesterday is likely to be repeated today. Investors need to keep their heads clear, as markets are currently being hit by several powerful forces at the same time: Iran and an oil price heading sharply higher, macro data surprising in very different directions depending on where you look, a large round of central bank meetings yesterday and again today, and a heavy earnings calendar across both sessions. In other words, it is difficult to separate the signal from the noise. But one thing is becoming increasingly clear: the US is performing much better both from a macro and micro perspective than other regions. Tech, tech investment and therefore broader corporate investment, much more than private consumption, are the areas standing out positively right now. That is also visible in the rotations we are seeing, both across sectors and across styles.
Overall, the Iran situation and the oil price are still conducting the orchestra, as we can also see this morning. But from an equity market perspective, earnings are strong enough to act as a partial counterweight to the negative geopolitical impulse. Put differently, with oil at new highs in the Iran conflict and equities still close to all-time highs, one can only speculate where equities would have been without the negative impact from Iran, Hormuz, the Persian Gulf and oil.
This morning, the focus is mostly on Iran and higher oil prices, leaving most of Asia in red. European futures are materially lower, and the same is true in the US. However, the tech-growth segment is still holding up best in futures.
FI and FX: An unchanged policy rate from the FOMC combined with a hawkish tilt pushed EUR/USD below 1.17 and shifted market expectations from a slight cutting bias to a slight hiking bias in 2026. The announcement from Powell to continue as a Governor was a contributing factor to the hawkish repricing as it means that biggest dove Miran will have to leave as a Governor in June. Oil prices climbed to a new high since the start of the US-Iran war with the June Brent contract reaching USD 124 as Trump shows no willingness to open his naval blockade without a nuclear deal. Aside from geopolitical developments in the Middle East today’s focus will be on the ECB meeting where the communication will be key as no changes to the key interest rates are expected. After preliminary inflation numbers from Germany (below expectations) and Spain (above expectations) we expect the preliminary euro area numbers for HICP to print at 2.8% y/y.
