All eyes on US JOLTS and EA HICP inflation

In focus today

In the euro area, focus turns to the May HICP inflation. We expect headline inflation to decline to 2.0% y/y from 2.2% y/y, driven mainly by core inflation falling from 2.7% y/y to 2.4% y/y, based on regional data already released. The expected decline in core inflation is due to base effects and as the monthly price growth in transport services will likely decline following the strong increases in April related to Easter. We expect energy inflation to remain negative due to the recent fall in energy prices and the strengthening of the euro.

Also in the euro area, we will receive data on the unemployment rate in April, which is expected to remain record low at 6.2% as indicated by survey data.

In the afternoon, US JOLTs labour turnover survey is due for release for April. We will keep a close eye on how the number of job openings as well as firms' hiring and layoffs evolved after the 'Liberation Day'. In the evening, the Fed's Cook and Logan will be on the wires.

In Sweden, the Riksbank board participates in an open parliamentary hearing on monetary policy (09:00-11:00 CET) as part of the annual evaluation conducted by external researchers. While it is 2024 that is up for scrutiny, there is always a chance of comments on current monetary policy,s which is extremely interesting two weeks ahead of the June meeting with still close to a 50/50 pricing of a cut.

Economic and market news

What happened overnight

In China, manufacturing PMIs from Caixin (private version) fell unexpectedly from 50.4 to a weak 48.3 in May, marking the first contraction in the sector in eight months and indicating US tariffs are now really starting to hit the Chinese manufacturing sector. The reading was the steepest decline since September 2022 and most sub-components fell sharply. However, business sentiment strengthened, supported by hopes of improvements in business conditions.

What happened yesterday

In the US, ISM manufacturing PMI in May came in at 48.5, thus surprising to the soft side relative to both consensus expectations and what regional Fed manufacturing indices were suggesting. Most sub-components remained relatively steady, but manufacturing firms reported the sharpest decline in imports since the financial crisis.

In the euro area, final manufacturing PMI for May confirmed the flash release of 49.4. The final release showed slightly weaker readings in Germany and Italy, compared to the flash release, while France and notably Spain were revised up. The data shows that the euro area manufacturing sector has had a strong improvement in 2025 rising from 45.1 in December 2024. Some front-loading to the US is explaining the improvement, which questions how far further it can go, but domestic factors such as lower ECB rates and rising credit growth is also supporting the sector.

In Sweden, manufacturing PMI eased from 54.2 to 53.6 in May, though remaining firmly in growth territory. The decline was mainly driven by weaker order intake and inventory stocks, but the index for suppliers' raw material and input prices also declined to a 7-month low, due to global raw material price increases.

In Norway, the PMI recovered from 46.2 to 51.2 in May, as expected. The improvement is probably a result of lower global risks as the trade war seems to be less devastating than expected only a month ago. Details a bit mixed with a solid recovery in production (46.5 to 53.4), still solid employment (52.9 to 52.3) whereas new orders improved but remained in contractionary terrain at 48.2.

In geopolitics, peace talks between Russia and Ukraine in Istanbul concluded swiftly amid tensions from a recent large-scale drone attack on Russian bombers. Despite the brief dialogue, both sides agreed to a new prisoner swap. Low expectations surrounded the talks, with Russia demanding Ukraine abandon NATO ambitions and withdraw from Russian-controlled territories. The US has warned of sanctions if progress is not made.

In international trade, the Trump administration is pushing countries to provide their best trade negotiation offers by Wednesday, aiming to wrap up talks within five weeks. The US seeks proposals on tariffs, quotas, digital trade, and economic security, and plans to evaluate responses swiftly to propose reciprocal tariff rates. Active negotiations involve the EU, Japan, Vietnam, and India.

Equities: European- and Nordic equities started the week lower, but US investors shook off the weakness. S&P 500 closed 0.4% and Stoxx 600 -0.1%. However, common for both regions was a defensive preference. Value cyclicals such as banks and industrials were at the bottom, while tech and energy led the US gains. We must admit that the US growth stocks have performed much better than we thought in this rising long-end yields regime. Futures are a notch lower again this morning.

FI and FX: US yields rose some 4-6bp across the curve in yesterday's session, but despite this we saw continued USD weakness as the broad dollar clocked in its weakest level since 2023. The NOK emerged as the top-performing G10 currency, supported by rising oil prices, with USD/NOK trading 15 figures lower during the session and NOK/SEK establishing above 0.9450 once more.