Trump puts pressure on EU to enter the trade war

In focus today

In the US, August producer prices (PPI) are due for release in the afternoon. This time, the PPI will attract even more attention than usual both because it is released ahead of the August CPI and because the previous July release surprised significantly to the upside. It will provide markets with the first sense of how tariff-related costs have continued to build.

In Norway, we expect the August inflation figures to show core inflation (CPI-ATE) rising by 2.8% y/y (cons: 3.1%) and declining -1.0% m/m (cons: 0.8%). This aligns with Norges Bank's June MPR estimate of 3.1% when we correct for the government's decision to cut kindergarten prices from 1 August. The price cut is expected to help pull down core inflation by approximately 0.2-0.3 percentage points.

In Sweden, we will receive economic data for July, including the production value index (PVI), industrial production, the consumption indicator, and the GDP indicator. In June, the PVI increased y/y, and industrial production has been strong. While the GDP indicator is volatile and should be interpreted cautiously, the consumption indicator is generally more reliable and has shown signs of improvement.

In Denmark, inflation data for August is also released. We expect inflation will fall to 2.0% y/y from 2.2% y/y in July. It is particularly driven by an August surge in electricity prices last year now exiting the inflation measure, while at the same time prices look to have declined in August this year. It will be interesting to see how big the usual August food price decline will be following three months of surging prices.

Economic and market news

What happened overnight

In China, August CPI inflation dropped back into negative territory at -0.4% y/y (prior: 0.0%), generating fresh deflation headlines. However, core inflation rose to 0.9% y/y (prior: 0.8%) and has been increasing over the past quarters, nearing 1%. PPI eased to -2.9% y/y (prior: -3.6%) but remains in deflation, reflecting ongoing overcapacity issues in certain sectors driven by intense competition and insufficient demand.

In the US, a federal judge ruled that President Trump's attempt to remove Fed Governor Lisa Cook lacks legal ground, temporarily keeping her in office as the case proceeds. This likely means that Cook can attend the Fed meeting on 16-17 September, reinforcing Fed's independence.

Also in the US, President Trump has urged the EU to impose tariffs of up to 100% on China and India to pressure Putin by targeting key buyers of Russian oil. The request came as the EU delegation met in Washington to discuss sanctions coordination. An EU diplomat stated the US signalled readiness to impose similar tariffs if the EU agreed.

What happened yesterday

In the US, the preliminary NFP benchmark revision came in more negative than expected with a significant downward adjustment of -911k jobs. However, note that the revision applies to employment data from April 2024 to March 2025 and, as such, does not reflect recent growth momentum in labour markets. The data shows no sharp rise in layoffs or unemployment, but slowing job growth reflects limited available workers. While the data alone does not strongly justify immediate rate cuts, it may serve as an argument for those already advocating for it. We expect the Fed to resume its rate cutting cycle starting at next week's September meeting.

In France, President Macron appointed defence minister Sebastien Lecornu as prime minister. A close ally of the president and the only minister to have remained in government since Macron's 2017 election. A tough challenge now awaits the new PM of helping the minority government secure opposition support to pass the 2026 budget.

In geopolitics, Israel launched an attack on Hamas in Qatar, drawing condemnation from Qatari officials, Arab leaders, and the UN. The White House stated that the strike did not advance Israeli or American goals but reaffirmed eliminating Hamas as a worthy objective. Israeli authorities have also threatened to expand their assault against the Houthis in Yemen, as the humanitarian situation in Gaza worsens. In our view, yesterday's attack seems more like an act to sabotage ongoing ceasefire talks, even as Israeli leadership is likely to frame it as a coercive measure to force a truce. Oil prices showed little reaction, reflecting a high threshold in markets for disruptions in the Middle East.

Equities: Equities extended their grind higher yesterday in what some would call a pain trade - an uncomfortable lift where investors remain uneasy about valuations and macro risks, yet the market keeps drifting up. Cyclicals outperformed defensives, volatility edged lower, and we saw a classic rally given where we are in the cycle and how positioning is. In the US yesterday, Dow +0.4%, S&P 500 +0.3%, Nasdaq +0.4% and Russell 2000 -0.6% and into the US close, the Dow, Nasdaq and S&P 500 all hit fresh all-time highs, underlining the strength of the move.

The wall of worries remains intact - from sharp downward revisions to US payrolls, to the French government losing a confidence vote, to geopolitical tensions following the Israeli strike in Qatar. Yet the market shrugged it off, as the underlying data flow yesterday was generally solid and the political/geopolitical noise did not fundamentally alter the economic outlook. This morning, Asian markets are higher and the same goes for most futures in the US and Europe.

FI and FX: For the first session in a week, global yields ended yesterday on a higher footing. Overnight this move has extended with 10Y US Treasury yields hitting 4.09%. The USD FX is also stronger with EUR/USD completing an almost full-figure drop down close to the 1.17-figure. In broader FX markets, commodity exporting currencies have enjoyed higher commodity prices with notably NOK and AUD being among the outperformers in Majors' space. On the other hand, commodity importing currencies have suffered with CEEs and the EUR doing poorly.