Trade talks and inflation data in focus for the week

In focus today

In a quiet start to the week on the macro data front, markets will continue to closely monitor any developments in negotiations related to the trade war. Specifically, US Treasury Secretary Schott Bessent has promised a complete briefing on the weekend's negotiations between the US and China today.

In Denmark, we will receive inflation data for April. We expect it to remain unchanged at 1.5% y/y, with March inflation decreasing from 2.0% to 1.5%. Easter could influence this, as prices for package holidays and air travel fluctuate, but the extent is uncertain.

For the remainder of the week, focus will turn to inflation data, with the star of the show being US CPI for April being released on Tuesday. Thursday will see US retail sales and PPI data, while Friday brings consumer confidence figures - all potentially influenced by higher tariffs. In the euro area, Thursday will feature the second GDP estimate and March industrial production data, followed by the European Commission's spring economic forecast on Friday. China's credit data is also expected though the date is uncertain. In Norway, mainland GDP data is scheduled for Thursday. Presidents Zelenskiy and Putin are set to meet on Thursday in what would mark the first direct peace negotiations between Ukraine and Russia since March 2022.

Economic and market news

What happened overnight

In the US, President Trump announced he would sign an executive order on Monday morning to lower prescription drug prices using the 'Most Favoured Nation' principle, a key pillar of the WTO. This aims to match drug costs in the US with those in other high-income countries, with Trump claiming that it could reduce costs by 30-80%. The move would have broader implications for drug pricing beyond current negotiations under the Inflation Reduction Act.

In the equity and commodities space, the dollar strengthened in early Asian trade following optimistic US-China talks, indicating resilience amid recent volatility. Gold prices eased, trading around USD 3,280 per troy ounce this morning, signalling lessened demand for safe-haven assets. Brent spot traded in the USD 63-64 range per barrel this morning, though increased supply plans by OPEC+ remain a potential headwind.

What happened over the weekend

In the trade war, US Treasury Secretary Bessent and Trade Representative Greer have reported 'substantial progress' in the trade talks with China that took place in Geneva over the weekend. Chinese officials confirmed that a joint statement containing "good news for the world" will be announced today. Despite ongoing challenges, the discussions were described as constructive, potentially easing tensions between the two largest economies. As economic pain is growing for both countries, we believe that tariffs will be lowered to around 60% soon.

In Norway, April core inflation surprised to the downside 3.0% y/y (March 3.0% y/y) on Friday. A look at the details showed that the slowdown was relatively broad-based, with lower price growth in food, other Norwegian-produced goods and imported goods. Price growth in services excl. rent rose from 3.5% y/y to 4.6% y/y, but this was entirely due to higher inflation on airline tickets. Both lower food prices and more expensive airline tickets are largely an Easter effect that will probably reverse in the coming months. However, if we exclude both these components, it shows that 'core-core' inflation decreased from 2.6% y/y to 2.35% y/y, which may indicate that underlying price pressures are on the decline.

In South Asia, India and Pakistan reached a ceasefire agreement late Saturday after several days of intense fighting. The agreement followed diplomatic efforts and pressure from the United States, with President Trump pledging to work towards a solution for Kashmir and increase trade with both countries. Despite the ceasefire, both sides reported overnight violations, with artillery fire in Kashmir.

In the Ukraine-Russia war, President Zelenskiy has agreed to meet President Putin in Turkey on 15 May, following Trump's urging to engage in direct talks. Putin's proposal follows significant pressure from major European powers in Kyiv, who demanded Putin to agree to a 30-day ceasefire or face 'massive' sanctions. Zelenskiy initially insisted on the ceasefire before negotiations. Trump, however, pressed for immediate talks, emphasising the potential to end the conflict. Read more in  Geopolitical Radar: Another military conflict erupts, 9 May.

Equities: Equities were in a wait-and-see mode on Friday amid China-US talks this weekend. US investors appear to be cheering already with the S&P 500 future 1.5% higher and Nasdaq 2% higher. We disagree and believe that the risk reward is skewed to the downside when it comes to speculating on trade deals. Hence, we see a risk of this rally fading into the day. However, no matter whether the deals are good or bad, uncertainty comes down, which is positive for risk appetite. VIX is hovering just above 20, and if it goes below 20, driven by a decent deal today, we will see risk parity funds adding positioning support.

This was a down-week for most regions after a remarkable two-week rally. Risk appetite was still visible beneath the surface however, with cyclicals outperforming defensives (you can blame Eli Lilly for some of it). After lagging in the recovery, Europe outperformed US slightly. Interestingly, equities have not yet reacted much to the higher yields. However, if risk appetite continues to hold up, we should see higher yields resulting in more value rotation, to the benefit of Europe.

FI&FX: The improved risk-sentiment from last week is likely to continue following the positive reporting on US-China trade talks over the weekend. This week we have the expected syndication from the EU as indicated by its funding plan for Q2, possibly already taking place today.