US Prepares to Extend Tariffs

In focus today

In the US, ADP’s private sector employment growth will be released for May. ADP’s weekly estimates have pointed towards another solid month of job creation. ISM Services Index is also due for release. The earlier flash PMI pointed towards a small uptick in business activity growth.

In the euro area, the final PMI data for May is due. The final manufacturing print was marginally higher than the flash release, so we expect the composite index to also be close to the flash estimate of 47.5, with services at 46.4.

In Sweden, the May services PMI will be published. The series is volatile, so individual observations should be taken with a pinch of salt. The latest reading showed a slight decline, but the level above 50 still points to a solid situation and a better development in Sweden than in the euro area. In the current environment, with an increased focus on inflation, we will monitor the trend in input prices particularly closely, as they tend to be a good leading indicator for core inflation.

Economic and market news

What happened overnight

In US trade policy, the USTR has completed Section 301 forced‑labour investigations covering 60 economies, paving the way for permanent tariffs to replace the expiring 10% Section 122 duties on 24 July. Proposed rates are 10% for a small group (including Canada, the EU and Mexico) and 12.5% for others, with Brazil separately hit by a 25% tariff. While the shift in legal basis could still face court challenges, overall tariff levels for now should remain little changed when the authority ‘switches’ from Section 122 to Section 301.

We have published our Nordic Outlook – Ripple effects from the Strait, 3 June, with updated economic forecasts for the Nordic economies, the euro area, the US and China. In the Nordics, the picture is mixed. Sweden continues to recover, albeit at a slower pace than previously expected. Norway is slowed down by higher inflation and interest rates. Danish GDP growth is surging but the underlying reality is one of modest growth. Finland is seeing some welcome recovery but could use more.

What happened since yesterday

In the US, April JOLTS job openings surprised on the upside at 7.6 million (cons: 6.9), while hires eased to 5.1 million and layoffs were broadly unchanged at 1.7 million. The ratio of job openings to the number of unemployed reached 1.03 (from 0.95) – the hottest level since January 2025. Even though the figures are for April and not May (as in Friday’s payrolls), they reinforce the picture of a robust labour market that is no longer cooling and may even be tightening again. Before the release, the Fed’s Hammack (voter, hawk) warned the Fed ‘may need to act soon if inflation trends don’t cool’.

In the euro area, HICP inflation rose to 3.2% y/y (cons: 3.2%, prior: 3.0%) as expected, but slightly above country indications. Core inflation increased more than expected to 2.5% y/y (cons: 2.4%, prior: 2.2%), driven by stronger services. Services inflation rose to 3.5% y/y from 3.0%, partly due to Easter base effects but more importantly a solid 0.4% m/m s.a. increase. Outside services, momentum remains weak, with no signs of higher goods prices and seasonally adjusted food and energy prices falling in May. Overall, this should limit how hawkishly the print is interpreted, although the services surprise still makes it a marginally hawkish outcome for the ECB, consistent with our call for a June hike.

In Denmark, the Danish central bank did not intervene in the FX market in May, where EUR/DKK hit a new historic high of 7.4739. On the one hand, the central bank continues to show great patience with respect to the upwards pressure on EUR/DKK, which has since risen to 7.4742. On the other hand, the upwards pressure persists and if it continues the central bank will likely opt to step in and cap EUR/DKK. Overall, it supports our call that the chance of a 10bp unilateral rate hike in Denmark the coming year is low.

Also in Denmark, a new Danish government is finally in place after the March election. It has presented a programme with substantial tax cuts, especially on VAT on food. The VAT will lower inflation substantially when it happens, but that will not be this year and probably not 2027 either. In the meantime, previously announced cuts to food taxes are cancelled and fuel taxes are not cut, so no extra inflation relief this year. The programme is more concrete on tax cuts and expense increases than on the financing, but that is not unusual for this type of announcement and does not in itself imply increased government borrowing.

In Poland, the National Bank of Poland kept rates on hold at 3.75%, as widely expected.

Equities: Equities rose (again) yesterday, (again) led by Tech and with a large number of new all-time highs across indices.

Whereas Monday’s rally was somewhat disturbed by Iran-related headlines, yesterday’s move was primarily macro-driven, and the macro news was broadly positive. That triggered a sizeable cyclical rotation. The key point was that US JOLT data moved back in line with the other strong labour-market indicators we have seen over recent months, thereby removing one of the main concerns around the US economy.

If anything, the US labour market has strengthened since the escalation in the Middle East, not weakened. In other words, the geopolitical situation has so far had very limited impact on US labour-market momentum. The combination of strong macro data and very robust earnings is a major challenge for the bears. Their best hope remains a further deterioration around Iran and the Strait of Hormuz. This morning, Asian equities are higher, with Japan leading the move and up close to 3%. US and European futures are broadly flat.

FI and FX: It was a relatively quiet day in FX and fixed income market yesterday, where euro area inflation rose in line with expectations and energy prices were steady. Short-term US and euro area interest rates did not move much and consequently EUR/USD was about unchanged in 1.1620-50 range. EUR/NOK traded around 10.80 and EUR/SEK above 10.80. USD/JPY climbed closer to 160 level yesterday. That warrants close monitoring in our view as it may potentially trigger another round of FX intervention. 10Y US and German government bond yields were steady yesterday.