Markets take breather ahead of US CPI

• Markets take breather ahead of US CPI.
• UK unemployment on the rise.
• German ZEW survey mixed.

European markets are making moderate gains today, as stocks take a breather after yesterday’s widespread exuberance. The tariff breakthrough seen over the weekend managed to outperform even the most optimistic, with the White House previously leaking the potential to drop tariffs to the 50-80% region. With the US and China both slashing tariffs by 110%, traders can look through much of the April data should it prove worrying, with today’s US CPI providing the first opportunity to do so. The widely anticipated uptick in price pressures within the April monthly CPI report looked to be the first sign that we were on a pathway to another secondary surge in inflation. Nonetheless, we are now in a position where Trump has by and large removed all the reciprocal tariffs for a 90-day period, highlighting how the so-called “liberation day” marked the highest point of economic fear. Trump’s decision to essentially wave those tariffs for three-months does highlight his desire to strike deals with trade partners, and thus the coming months will increasingly focus on the ability to get these complicated agreements across the line. For now, we are enjoying a welcome reprieve that allows the bulls to regain the upper hand, building on the strong earnings season that is now 91% complete.

This morning saw a UK jobs report which provided a mix of higher unemployment, mixed wages, and lower-than-expected claimants. The UK unemployment rate of 4.5% represents the highest level since 2021, breaking out from a four-month period of stability. While there will always be questions around the world growth picture in the face of a breakdown in trade relations, the UK’s trade deficit with the US has meant that the economic implications were less likely to take a tangible toll on the economy. Today’s outperformance of the FTSE 250 (0.4%) compared with the FTSE 100 (0%) highlights a confidence in the domestic economy going forward. Crucially, in the wake of the UK’s exit from the EU, the recent fear surrounding global trade means that the UK could be well positioned to finally strike trade deals that perhaps have been less forthcoming over recent years.

The German ZEW economic sentiment survey saw a dramatic surge in confidence, with both the German and wider eurozone metrics rising back up into positive territory after last month’s collapse. Notably, the current conditions metric took a different path, with the latest figure of -82 representing a breakdown from a four-month trend of recovery. With the German having appointed a new Chancellor and the US reciprocal tariffs dropping back down to the 10% threshold, there is a hope that the economy starts to look as strong as the DAX (record highs yesterday). Nonetheless, with auto tariffs still in place, and Trump having little positive to say about the eurozone, a trade deal may yet be some way off.