European PMIs see sharp boost to manufacturing ahead of tariffs

Early gains in European equities are easing back, following a mixed PMI report that saw strong manufacturing offset by questions around the direction of travel for services. Nonetheless, US futures do point towards a strong start, with traders feeling increasingly confident that the reciprocal tariffs due for implementation in just over a week could be less combative than previously expected. With so-called “Liberation Day” just nine days away, Trump appears to be taking a more focused and strategic approach which could yet prove less damaging that the broad approach taken thus far. There has been talk of a targeting of the so-called “dirty 15” group of nations who have enjoyed persistent surpluses with the US, with other nations likely to remain largely unscathed. Interestingly, there has been talk of Trump pulling back from sweeping industry-specific tariffs, aimed at sectors such as autos, semiconductors, and pharmaceuticals. This may yet simply provide fresh deadlines for traders to anticipate down the line, but for now markets are starting to believe that 2 April may be a sell the rumour, buy the fact situation.

Today sees a raft of PMI surveys released around the globe, with the Japanese composite PMI tumbling to the lowest level seen since 2022 (48.5). Coming off the back of the recent decline in Japanese inflation, it does provide the basis for markets to question whether the BoJ will stand ready to tighten further in the coming month. In Europe, Donald Trump’s efforts to hit manufacturers outside of the US appears to be doing quite the opposite, with eurozone Manufacturing output rising to the highest level since May 2022. Notably, we are caught in a position where US buyers are likely to have front-loaded their purchases ahead of the April tariffs, providing a potentially false boost that could yet reverse in a month’s time. Nonetheless, the European plans to ramp up military spending does provide the basis for optimism going forward, although the time needed to turn those plans into tangible economic activity remains somewhat unclear.

This week provides a focus on inflation data, with Friday’s US core PCE metric bringing fresh insights into the direction of travel for prices under Trump. The recent talk of a US recession does help ease some concerns that producers will ramp up prices in anticipation of an economic surge, although traders will remain concerned that the imposition of tariffs will ultimately push a one-off surge in price pressures. With that in mind, the US manufacturing PMI surveys seen over the coming months will be watched closely for signs that input prices are on the rise for US producers.