EA inflation and US jobs data in focus

In focus today

• In the euro area, we focus on HICP inflation data for April. Country data showed slightly higher inflation in France, Germany, and Spain, while inflation was lower than expected in other countries such as Italy. Overall, we expect inflation to decline to 2.1% y/y from 2.2% y/y as expected before the country data releases. Core inflation has been surprisingly strong in both Spain and Germany and is likely to be higher than expected in the euro area data, rising to 2.6% y/y from 2.4% y/y in March. The timing of Easter has pushed up core inflation but even disregarding that effect, core pressures seemed stronger in April compared to the past months.
• In the euro area, we also receive data on the unemployment rate for March. Unemployment unexpectedly ticked down to an all-time low of 6.1% in February, which shows that the labour market remains very strong and should support growth despite the negative impact from US tariffs.
• From the US, the most important data release will be the April Jobs Report. We think nonfarm payrolls grew by +130k and unemployment rate remained steady at 4.2%. Leading data on jobless claims and job postings suggests that overall labour market conditions have remained relatively steady despite all the tariff uncertainty.
• In Norway, the PMI figures for April may capture some of the change in sentiment that seems to have occurred in the aftermath of the escalation of the trade war. We believe that the PMI fell to 50, but as usual we warn that these figures can fluctuate a lot from month to month. We do not believe that the unemployment figures for April from NAV will show any special effects, as it takes some time for a change in sentiment to have an impact on unemployment. Therefore, we believe that the unemployment rate (SA) was unchanged at 2.0% in April.
• In Sweden, we receive the purchasing managers' index for the industry. Last week, the Economic Institute's barometer indicated an improved mood within the industry. Despite better overall sentiment, expectations for new orders ahead decreased, especially in export markets. The order situation in relation to inventory volume also signals a potential slowdown in today's PMI figures.

Economic and market news

What happened overnight

In the US-China trade war, Beijing is evaluating an offer from Washington to hold talks over Trump's 145% tariffs, suggesting a potential easing of the ongoing trade war. China's Commerce Ministry has indicated that Beijing is open to discussions but insists that the US must correct its "erroneous practices" and cancel unilateral tariffs to show sincerity in negotiations. US officials are hopeful for progress in reducing trade tensions, with Treasury Secretary Scott Bessent emphasising a multi-step process starting with de-escalation. The story sent oil pricing climbing over hopes of a de-escalation in a bitter trade war between the world's two biggest economies.

What happened yesterday

In the US, the April ISM Manufacturing index decreased to 48.7, but came in higher than market expectations (cons: 48.0, prior: 49.0). The reading indicated a second consecutive month of contraction in the manufacturing sector, consistent with the regional Fed manufacturing surveys. Output shrank more sharply (44.0 vs. 48.3), while prices rose further (69.8 vs. 69.4), reflecting continued cost pressures. New orders declined at a slower pace (47.2 vs. 45.2), although new export orders fell more steeply amid ongoing tariff-related disruptions.

In geopolitics, the US and Ukraine signed a minerals deal, granting the US preferential access to Ukraine's mineral resources and establishing a joint investmaent fund for Ukraine's reconstruction. The agreement aims to strengthen the strategic partnership and support President Trump's negotiations with Russia for peace in Ukraine. While Ukraine sees the deal as beneficial for its economy and EU aspirations, it is criticised for lacking US security guarantees. Importantly, the Ukrainian parliament has yet to vote on its approval.

In US politics, we have seen the first shakeup in Trump's inner circle as Mike Waltz, currently National Security Advisor, is set to be nominated as the US ambassador to the United Nations. Secretary of State Marco Rubio is named as his interim replacement. Waltz's departure follows criticism related to a Signal messaging scandal and a series of firings at the National Security Council. International partners have expressed concerns about Waltz's departure, given his support for alliances like NATO. One of the leading candidates to replace Waltz is apparently Steve Witkoff, Trump's special envoy to the Middle East who has also had a prominent role in Ukraine peace talks.

Equities: It is like 2022 markets never left. US stocks closed higher on Thursday, following a big intra-day rebound. The drivers? Tech stocks, following impressive Q1 results from Meta and Microsoft. Meta also raised its capex guidance, with positive spillover on industrials after the recent AI hangover. Results triggered a big rotation in equities, with investors buying tech and selling off defensives: Just take IT outperforming health care by five percentage points. S&P 500 rose 0.6% (Nasdaq 1.5%) with tech, communication and discretionary outperforming. However, equal weighted S&P 500 was broadly unchanged. Hence, Europe underperformance not as bad as it seems at first glance, with Stoxx 600 up 0.5% yesterday. US futures are continuing higher this morning.

FI & FX: US Treasuries sold off sharply in yesterday's session following a stronger-than-expected ISM manufacturing release, resulting in a bear flattening of the curve. The 2Y yield rose 9bp, outpacing the 5bp and 3bp increases in the 10Y and 30Y, respectively. EUR/USD hovers around 1.13, with the USD stabilizing this week as some of the risk premium continues to unwind from US asset markets and the greenback. USD/JPY edged higher above 145, with the JPY weakening against all other G10 currencies following the BoJ's dovish hold. After a period of limited domestic data, Norway will see two releases today worth monitoring: the monthly PMIs and the NAV unemployment figures. Danmarks Nationalbank will also publish its April foreign exchange reserves today; we do not expect any intervention. Oil prices have bounced around this week temporarily falling below USD60/bbl.