PPI to test CPI signals

Danske Research Team Danske Bank A/S

In focus today

In the US, April PPI data is due for release. Yesterday's CPI print showed sticky monthly services and super-core inflation, reinforcing concerns around persistent underlying price pressures. Markets will watch whether PPI confirms similar price momentum.

In the euro area, we will receive the second estimate of GDP growth in Q1. Focus is on the data on employment growth, which we expect at 0.1% q/q.

In Sweden, the final figures for April inflation are expected to confirm the low preliminary numbers, with CPIF at 0.8% y/y and underlying inflation at 0% y/y. We will also get an answer to what contributed to the low services inflation. It could be administrative prices, but there is also considerable uncertainty around travel related services, which vary greatly depending on the season. This year there is a new measurement method for certain hotels and new information for air travel.

In addition to the inflation details, we will also receive the Riksbank minutes from last week's rate announcement,.

Due to Ascension Day, Danske Morning Mail returns on Monday, 18 May. During the break, key releases include US retail sales and UK March/Q1 GDP on Thursday, while Thursday-Friday sees President Trump's visit to China to meet President Xi Jinping. We do not expect major breakthroughs, though smaller deals on trade, fentanyl and rare earth security are possible. Read more in Research US-China - Xi-Trump meeting preview: We expect no game changers, 12 May.

Economic and market news

What happened yesterday

In the US, headline inflation rose 0.6% m/m SA, in line with expectations, while core inflation was stronger than expected at 0.4% m/m SA (cons 0.3% m/m). Shelter rose 0.6% m/m and "super-core" (core services ex shelter) picked up to around 0.45% m/m, the highest in three months, underlining that domestic service price pressures remain uncomfortably firm. By contrast, core goods inflation was flat at 0.0% m/m, suggesting limited pass-through so far from higher commodity prices and keeping underlying pressures largely concentrated in services, reinforcing a cautious Fed. Read more in Global Inflation Watch - Shelter inflation boosts US CPI in April, 12 May.

In US monetary policy space, the Senate confirmed Kevin Warsh to a 14-year term as Federal Reserve governor by a 51-45 vote and is expected to vote as soon as today on a concurrent four-year term as Fed chair, positioning him to succeed Jerome Powell. Although Powell's term as chair formally ends on Friday, he stated last month that he will remain on the Fed board as a governor.

In the euro area, the German ZEW survey was slightly better than expected in May. The assessment of the current situation fell to -77.8 (cons: -78.0) from -73.7 while expectations improved to -10.2 (cons: -19.5, prior: -17.2). Despite the small improvement, expectations remain at very low levels as the industry-heavy German economy is expected to take a hit from higher energy prices. However, as the April manufacturing PMIs remained above 50 and the ZEW current assessment in May fell only to levels similar to what we saw in the last months of 2025, we are yet to see a significant hit on the German industry.

In the UK, more than 90 MPs called for PM Starmer to step down, and four ministers handed in their resignation yesterday. Bond markets fear looser fiscal policy in case of a change of leadership, which drove 30Y Gilt yields to the highest levels since 1998. If Starmer resigns, it could also open up for a more hawkish policy stance from the Bank of England, which was reflected in market pricing yesterday.

Equities: Global equities ended the day lower by 0.3% yesterday, after being down 1% at the lows. For once, semi-conductors in the S&P500 were among the weakest performers closing 1.4% lower, after being down about 4.5% earlier in the day. We will not overdo conclusions on such setback after an impressive 35% run over the past month. The defensive sectors, led by healthcare and staples, were among the top performers with gains of 1.9% and 1.6%, respectively in a broad based defensive outperformance. S&P500 closed down 0.2%, Nasdaq 0.7% lower, and Russell2000 down about 1%. Asian equities are mostly in green this morning after an initial setback. US and European futures are mostly in green today.

FI and FX: European yields ended the day higher across the board with 10Y Bunds breaking above 3.10% while 2Y EUR swap rates rose to close to 2.90% with now 85bp worth of hikes priced in for the ECB. The combination of higher energy prices, cautious risk sentiment and hot US CPI pushed EUR/USD lower yesterday. US inflation was faster than expected both in headline (3.8%; cons. 3.7%) and core terms (2.8%; cons. 2.7%). EUR/GBP was on the rise following mounting pressure for UK PM Starmer to resign. With up to 80 Labour MPs having called for Starmer to resign and six ministerial aides quit yesterday, prediction markets have ramped up bets of Starmer being out to around 70% by June and 85% by YE 2026. The SEK underperformed all G10 peers yesterday, with EUR/SEK pushing above 10.90 and USD/SEK rising to the 9.30-level. With no specific news out of Sweden, and Swedish rates moving mostly in line with European dittos in a larger risk-off move. Looking ahead, the rest of the week is quiet in terms of tier-1 data, but focus remains on Iran and the Trump-Xi meeting starting tomorrow.

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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