Danske Research Team
Danske Bank A/S
- Rebounding service sectors create strong job growth and hence inflationary pressure, but central banks have to balance that against expected effects of past tightening.
- Growth has surprised to the upside in both Denmark and Sweden, though for different reasons.
- Nordic housing markets show signs of levelling out, but that might change again.
- In financial markets, Nordic currencies are under pressure, while IT/AI equity is booming and credit markets are very active.
According to PMIs, economies have continued to strengthen in May and the picture of a two-speed economy has become clearer. Globally, manufacturing continues to struggle, in particularly in the euro area where the manufacturing contraction intensified in May, not least driven by Germany. The much bigger service sector, on the other hand, accelerated further, which leaves the impression of a resilient European economy supported by some relief in purchasing power following higher wage growth and lower energy prices. The picture is largely the same in the US, although the manufacturing sector has not weakened as much. However, in Western countries, we estimate that only a small part of the effect of the monetary policy tightening that has taken place is so far visible in the growth picture. In Japan, service PMI reached a historical high in May. The Chinese recovery has overall weakened after a strong rebound in Q1.
Inflation has declined significantly, largely driven by lower energy prices, while food prices have also started to decline. Lower commodity prices and freight rates is pulling business costs lower. However, core inflation remains elevated as tight labour markets continue to push service prices higher. Euro area HICP inflation declined to 6.1% in May from 7.0%, but underlying price pressures remain elevated. We expect service price growth to be underpinned by higher wage growth in Europe. In the US, core inflation remains too high as well, although we have seen some easing signs, as service sector inflation has declined, indicating a somewhat lower price pressure in the part of the economy, which is running particularly hot.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
USD/JPY holds near 155.50 after Tokyo CPI inflation eases more than expected
USD/JPY is trading tightly just below the 156.00 handle, hugging multi-year highs as the Yen continues to deflate. The pair is trading into 30-plus year highs, and bullish momentum is targeting all-time record bids beyond 160.00, a price level the pair hasn’t reached since 1990.
AUD/USD stands firm above 0.6500 with markets bracing for Aussie PPI, US inflation
The Aussie Dollar begins Friday’s Asian session on the right foot against the Greenback after posting gains of 0.33% on Thursday. The AUD/USD advance was sponsored by a United States report showing the economy is growing below estimates while inflation picked up.
Gold soars as US economic woes and inflation fears grip investors
Gold prices advanced modestly during Thursday’s North American session, gaining more than 0.5% following the release of crucial economic data from the United States. GDP figures for the first quarter of 2024 missed estimates, increasing speculation that the US Fed could lower borrowing costs.
FBI cautions against non-KYC Bitcoin and crypto money transmitting services as SEC goes after MetaMask
US FBI has issued a caution to Bitcoiners and cryptocurrency market enthusiasts, coming on the same day as when the US Securities and Exchange Commission is on the receiving end of a lawsuit, with a new player adding to the list of parties calling for the regulator to restrain its hand.
Bank of Japan expected to keep interest rates on hold after landmark hike
The Bank of Japan is set to leave its short-term rate target unchanged in the range between 0% and 0.1% on Friday, following the conclusion of its two-day monetary policy review meeting for April. The BoJ will announce its decision on Friday at around 3:00 GMT.