A week in the name of tariffs

In focus today

• In the euro area, focus turns to the German inflation data for March that we receive ahead of the euro area data tomorrow. Last week, inflation in France and Spain came in lower than expected, in a positive sign for the ECB, and it will be interesting if Germany shows the same development. We expect euro area HICP inflation to decline from 2.3% y/y to 2.1% y/y tomorrow due to energy and services inflation.

• In China, the Caixin PMI manufacturing, which is the private survey, will be released overnight. Consensus is for a small decline from 50.8 to 50.6 but we see upside risks to this estimate based on stronger signals from other indicators such as the Yicai index and rise in metal prices in March.

• In Denmark, the revised 2024 Q4 national accounts are released. The first print showed impressive GDP growth of 1.6% q/q. However, the uncertainty surrounding flash releases is always significant, and it will be interesting to see the extent of any revisions.

• In Sweden, today marks the deadline for the major wage negotiations, with significant pressure on industry parties to reach an agreement due to many expiring contracts. The initial offer proposed a three-year deal at 7.7%, which is lower than expected and potentially indicates downward risks for wage forecasts.

• In Australia, early tomorrow morning, we expect the Reserve Bank of Australia (RBA) to hold its Cash Rate unchanged at 4.10% in line with consensus. RBA initiated its rate cutting cycle in the previous meeting but did not pre-commit to delivering further easing. Markets price in 2-3 cuts for the rest of 2025 but see a 90% probability of RBA staying on hold tomorrow.

• In Japan, the Bank of Japan will publish its quarterly Tankan business survey overnight. PMIs suggest Q1 has been strong overall but based on a sharp decline in March, it will be interesting to see what the Tankan survey shows. Businesses are surveyed from late-February to late-March. Not least favourable wage negotiations this spring supports the outlook for further BoJ hikes, but a solid Tankan survey is also a prerequisite.

The main focus this week will most likely centre on tariffs - particularly from the US, with new broad-based tariffs expected to be enacted and reciprocal tariffs due to be announced, both on Wednesday. Overnight, he said they will include "all countries", ad odds with what has been communicated earlier. Read more on Research US: Trump's 'Liberation Day' - What to expect?, 27 March. We will also closely follow statements regarding Trump's potential new tariffs on Russian oil buyers. The week will conclude with the US March Jobs Report scheduled for release on Friday.

Economic and market news

What happened Friday and over the weekend

In the US, core PCE inflation increased 0.4% m/m (cons. 0.3% m/m) somewhat above expectations, while headline PCE increased 0.3% m/m in line with consensus. Real consumption volume growth remained muted at only +0.1% m/m SA (from -0.6% m/m) as personal savings rate remains somewhat elevated at 4.6%. This could reflect more cautious consumer sentiment.

In China, the official composite PMI index increased to 51.4 in March, up from 51.1 in February. Non-manufacturing PMI rose to 50.8 from 50.4 the previous month, reflecting stronger activity in the services sector, while the manufacturing PMI climbed to a one-year high of 50.5, up from 50.2, in line with expectations as business conditions continued to improve.

In Norway, the unemployment rate (SA) was unchanged at 2.0 % in March, as expected. Also, new vacancies were slightly down which could imply some slowdown in labour demand, though it remains at a historically high level. Retail sales dropped 0.1 % m/m in February, as consensus expected which takes the 3M/3M growth to 1.3 %. So, clear signs of a pick-up in private consumption on the back of higher real wage growth and a strong labour market. Overall, the data should be neutral to Norges Bank.

In Japan, the summary of opinions from the BoJ's March meeting were released on Friday. It contained a lot of recognition of the recent strong wage results, which highlights the importance of this as a prerequisite for hiking rates further. That said, there is also expressed some worry that investment is too weak among SMEs, which potentially indicates that the current wage growth is not sustainable. The uncertainty stemming from the US also gets a lot of attention, which supports our view that the BoJ will move carefully ahead but find room for another two hikes this year.

In geopolitics, U.S. President Donald Trump expressed anger towards Russian President Vladimir Putin and threatened to impose tariffs of 25-50% on imports from countries that purchase Russian oil if Russia obstructs efforts to end the Ukraine war. This move follows Putin's comments about the credibility of Ukrainian President Volodymyr Zelenskiy's leadership. Trump plans to discuss the situation with Putin in a phone call later this week.

Equities: Global equities declined on Friday, led by the US, due to a lack of risk appetite leading up to the weekend and a few days ahead of the quarter turn and "Liberation Day" as the US President has called the 2 April massive tariff increase.

Are there any surprises in this? Yes and no. On one hand, it is known that President Trump wants all negotiating partners to be as uncertain as possible about his next move, and the biggest negotiation effect from tariffs comes in the form of threats of the tariffs.

Hence, it is no surprise that risk-takers should be worried at a time when US trade politics are set to be turned upside down, with average trade-weighted tariffs potentially increasing towards 18% from a mere 3% going into the year.

Thus, one could call it a no no-brainer the VIX is high and risk-appetite is dropping, but on the other hand, there is a fundamental belief that tariffs are not beneficial for the US economy and, at some point, will be rolled back or reduced when Trump can declare a publicity victory against trading partners and tell US citizens he has made America great again.

Similarly, this is adding to the risk a recession, which we ultimately do not believe Trumps is willing to do. Therefore, that is why the destructive politics are not a no-brainer for us when considering risky assets.

One of the most interesting perspectives in the late Friday cash session was the "true" risk-off behaviour.

Firstly, cyclicals massively underperformed defensives, with even defensives being lower.

Secondly, yields took a hit, suggesting the market message is not a stagflationary environment but rather just a hit to growth and increased risk of recession.

US equity indices on Friday: Dow -1.7%, S&P 500 -2.0%, Nasdaq -2.7%, and Russell 2000 -2.1%.

The risk-off mode is continuing in Asia, with the yen being the safe haven. The Nikkei is down more than 4% at the time of writing, and other export and manufacturing countries are heavily down this morning.

Futures in Europe and the US are also sharply down this morning, along with the long end of the US yield curve.

FI&FX: Treasuries ended last week on a strong note as PCE data, University of Michigan and Trump's tariff threats in combination sent markets into stagnation mode. US equities dropped sharply with tech leading the selloff. Within FX JPY outperformed vs G10 peers and EUR/USD climbed above 11.08. EUR/NOK edged higher and ended Friday at 11.35. EUR/SEK gained 4-5 figures and closed the week at 11.84. Today, SEK enters a dividend-heavy period with SEK122bn to be paid out this week alone (see RtM Sweden, 14 Mar for details). In general, markets' eyes and ears are now on this week's tariff announcements.