Eurozone inflation hotter-than-expected

European markets are following their Asian counterparts higher as optimism over a potential breakthrough in trade talks between the US and China lift risk assets across the board. After Trump’s attempts to play hardball with China through the imposition of 145% tariffs, we are now seeing the US reach out to find a resolution that many hope will ultimately bring a reduction in import taxes in the face of a US Q2 recession. This week has seen plenty of volatility, with a raft of disappointing economic data coinciding with wide swings for Mag7 names in the wake of their latest earnings. The negative GDP figure, weak ADP payrolls figure, and weak core PCE price data does highlight a worsening economy that could yet put the Fed into action given the easing inflation pressures. However, whether the Fed are pushed into action next week could come down to the severity of this afternoon’s jobs report, with the expected NFP decline towards the 140k mark unlikely to shift expectations of a May pause. Thus, the potential for a major shift in expectations may rely on a significant collapse in payrolls or a jump in unemployment.

Eurozone inflation came in hotter-than-expected for March, with both core (1%) and headline (0.6%) monthly figures well over and above levels consistent with a return to 2%. Crucially, despite the sharp declines in energy prices (-2.3%), we saw that weakness overshadowed by strong services price pressures in April (1.3%). One positive element came from the lack of any notable uptick in non-energy industrial goods, with the 0.4% monthly figure highlighting how goods inflation remains subdued despite tariff threats.

Oil prices have seen major volatility over the course of the week, with the apparent withdrawal of Saudi support being counteracted by Trump’s warning that buyers of Iranian oil will face secondary sanctions. With this week seeing WTI drop back into levels seen back in 2021, sentiment around demand and support have both shifted in favour of weaker energy prices. Trump’s “drill-baby-drill” mantra seeming does little to help domestic producers. The impact of these lower prices on US oil & gas majors will come into focus later today, with Chevron and ExxonMobil both reporting their latest earnings. With Shell having announced a share buyback to counteract a 28% decline in Q1 earnings, will we see something similar from the US majors?