Tankan survey supports further BoJ hikes

In focus today

In the US, both ISM March Manufacturing index and February JOLTs turnover report will be released in the afternoon. Consensus expects ISM to remain steady from the previous month, and while global manufacturing indicators have generally edged higher, regional US data has pointed towards a weaker reading amid trade uncertainty. The Fed pays close attention to the JOLTs job openings as a key labour demand indicator.

In the euro area, we receive March inflation data. Inflation in France, Spain, and Germany has come in slightly lower than expected while Italy surprised on the upside. We thus expect the euro area HICP inflation to decline from 2.3% y/y to 2.1% y/y, which is mainly due to energy and services inflation. Though more ECB officials appear ready to accept an April rate cut pause, the declining inflation still paves the way for an ECB cut in April in our view. Also in the euro area, we receive data on unemployment, which we expect to continue to show a strong labour market with an unemployment rate of 6.2%.

In Denmark, we receive flash private sector earnings for Q1. Nominal earnings rose by 4.6% y/y in Q4, resulting in real earnings growth of 2.9% y/y. We anticipate substantial nominal wage growth for 2025Q1, which will continue the trend of real wage growth, albeit at a slower pace than observed over the past year and a half.

In Sweden, we get PMI for the manufacturing sector at 8.30 CET. Last month's print came in at 53.5, where all sub-components except for inventories contributed on the upside (i.e. new orders, production employment and delivery times). We expect a reading again around the 53-level, which would be in line with the readings over the past five months.

Economic and market news

What happened overnight

In Australia, the Reserve Bank of Australia (RBA) held its Cash Rate unchanged at 4.10% in line with consensus, after a 25bp cut on the February meeting. RBA revealed growing confidence that inflation is moving towards the midpoint of its 2-3% goal, but highlighted downside risks to domestic activity. Markets price in 2-3 cuts for the rest of 2025.

In Japan, the big quarterly Tankan business survey came in mixed this morning with large manufacturers business sentiment declining to index 12 from 14 in Q4, the lowest reading in a year. The survey was compiled ahead of Trump's auto import plans last week. Large non-manufacturing business conditions increased from 33 to 35, the highest reading since 1991, supported by a spending pickup but importantly also a record-high number of foreign visitors. Inflation expectations edged higher on both a 1, 3 and 5Y horizon as the outlook for wage growth this year continues to look strong. Largely the survey aims nicely with BoJ's plans to hike further, although the impact from tariffs on the key auto industry is still unclear.

In China, the Caixin PMI manufacturing, which is the private survey, surprised slightly to the topside, coming in at 51.2 in March (cons. 51.1), up from 50.8 in February. This marked the highest reading since November, driven by improved demand conditions and the highest growth in foreign sales in 11 months.

What happened yesterday

In Germany, HICP inflation declined more than expected to 2.3% y/y in March (cons: 2.4% y/y) from 2.6% y/y. Note it was a "low" 2.3% reading (2.27% y/y). The decline was due to energy inflation that declined from -1.6% y/y to -2.8% y/y and services that fell to 3.4% y/y from 3.8% y/y. Especially the decline in services inflation is important for the ECB as that part has been very sticky in the past year.

In Denmark, 2024 Q4 GDP was revised up to 1.8% q/q from 1.6% q/q in the flash release, while the growth rate for 2024 was revised up by 0.1 p.p. to 3.7% y/y. The industry, especially the pharma sector, was still the main driver of growth. We expect more from other parts of the economy in 2025.

In Norway, the labour market organisations in the manufacturing sector, which act as a blueprint for the rest, have agreed on a wage growth of 4.4% for 2025. This is marginally below Norges Bank's (NB) estimate from the monetary policy report in March (4.5%) and shows that wage growth is decreasing even though the labour market remains tight. There is therefore room for monetary policy to gradually become less restrictive, allowing NB to eventually cut rates as they have signalled.

Equities: Global equities experienced a decline again yesterday. However, this session differed from many of the prior trade war-driven sessions, as the US ended higher for most indices and, contrary to Friday's session, indices ended close to daily highs. Consequently, both Europe and, notably, Asia underperformed yesterday.

In terms of industries and sectors in the US, 21 out of 25 industries saw gains yesterday, indicating a somewhat broad-based lift. Nonetheless, there was a significant defensive outperformance, suggesting that while some investors might venture to buy the dip, they are doing so in the less risky parts of the market. Similarly, the VIX rose despite the S&P 500 being 0.55% higher yesterday.

Unless you have special insight into the thoughts of the US president, as an investor, you will typically approach this cautiously. Yesterday's marginal improvement in risk sentiment was purely related to speculation that Liberation Day tomorrow might be slightly less severe than consensus believes.

In the US yesterday, the Dow rose by 1.0%, the S&P 500 by 0.6%, while the Nasdaq fell by 0.1% and the Russell 2000 by 0.6%.

Asian markets are mostly higher this morning, with catch-up moves particularly in export and manufacturing-heavy South Korea and Taiwan. We link this to the ongoing tariff questions, despite the PMIs released this morning.

European futures are higher this morning, while US futures are lower.

FI&FX: US equities were off for a rough start but firmed throughout the session. S&P 500 closed at +0.55%, though with tech falling behind. US 2s10s bear flattened with the short end rising 5bp and the 10y closing at 4.21%. Hawkish ECB rumours gave a lift to German 2yrs but did not help EUR/USD much. The cross gradually fell back toward 1.08. USD/JPY remains stuck around 150. EUR/SEK climbed toward 11.86 while month-end trading was part of the equation. NOK erased initial losses vs the EUR and closed flat on the day at 11.36. Scandies will take direction from tariff announcements and the SEK could be vulnerable to dividends.