US CPI takes centre stage today

In focus today

The most important data release today will be the US May CPI. We forecast headline inflation at +0.2% m/m SA (2.5% y/y) and core inflation at +0.2% m/m SA (2.9% y/y) - slightly below consensus on the latter. We expect firms to gradually pass through the rising tariff costs to core goods and food prices, but also that services inflation will continue to moderate.

Economic and market news

What happened overnight

US and China finished two days of trade talks in London last night agreeing on a framework for implementing the consensus reached between the two countries' leaders. The framework will have to be approved by US President Donald Trump and China's President Xi Jinping. There were no details on what was in the framework, but US Commerce Secretary Howard Lutnick said that they expect that the topic of rare earth minerals will be resolved in the framework implementation. Probably today or tomorrow we will get more details if the two presidents approve it, which seems likely. Chinese negotiators stated that "we hope the progress made will be conducive to building trust". The talks are seen as positive for markets in the short term, but we know from previous trade talks that the good mood can fade quickly between the two sides. It will be key for China in the short term that the US does not implement new tech restrictions.

What happened yesterday

In euro area, investor confidence saw an upswing as the Sentix Investor Confidence Indicator rose to 0.2 in June, marking the highest level in a year. Consensus had expected an increase to -5.5 from -8.1 in May, making this a notably positive surprise. Despite the on-going trade uncertainty investor confidence has thus rebounded and is now higher than the before Trump's "liberation day" according to Sentix.

In Denmark, inflation in May remained relatively stable, increasing to 1.6% y/y from 1.5%. Food prices surged by 1.7%, resulting in an annual food inflation rate of 5.2%. Core inflation remains subdued, aligning well with our updated forecast from last week, where we expect annual inflation to be 1.5% in 2025 and 1.6% in 2026. Inflation remains below the 2% target, underlining that despite a robust labour market and substantial wage increases domestically, the underlying price pressure is well-managed.

In Sweden, the Riksbank's business survey highlights a worsening outlook as businesses grow more pessimistic about economic development. Rising trade tensions and global uncertainty are dampening demand expectations, particularly in manufacturing and construction, while retail shows some resilience. April's activity showed improvement, with the GDP indicator rising by 0.4% m/m, despite its usual unreliability. Moreover, the consumption indicator increased by 0.5% m/m, supporting our forecast that private consumption is regaining strength. Despite a 6.3% m/m decline in industrial orders, the overall outlook remains positive.

In Norway, core inflation for May came in lower than expected at 2.8% ý/y. Norges Bank had projected 3.1% y/y while consensus was for a 2.9% y/y print. As anticipated, food prices moved higher whereas transportation costs decreased following Easter-related impact in April's figures. Apart from these adjustments, there were only minor surprises, the most notable being a slowdown in rent inflation from 3.9% y/y to 3.6% y/y.

Equities: Equity markets edged higher yesterday in a slow and cautious grind. Most notable was the unusual sector dynamic beneath the surface: despite the broader risk-on tone and steadily declining volatility, defensive sectors outperformed. Or rather financials and industrials came under pressure - with banks being the worst performing industry group in Europe - even as yields moved broadly sideways. More broadly, cross-asset volatility remained subdued throughout Tuesday's session, even in the face of a string of moderately market-relevant data prints and ongoing trade discussions between the US and China held in the UK. The lack of reaction across equities, rates, FX, and commodities speaks to a market in wait-and-see mode, with positioning increasingly skewed toward complacency. In the US yesterday, Dow +0.3%, S&P 500 +0.6%, Nasdaq +0.6%, Russell 2000 +0.6%. This morning, Asian markets are higher while futures in both Europe and the US are marginally lower.

FI & FX: Treasuries and the USD little changed on the news coming out after the trade negotiations between US and China ended and ahead of today's US CPI. US10y around 4.47% and EUR/USD at 1.14. Asian equities are trading mostly in green this morning with Hang Seng +1.0% while futures indicate a negative opening. EUR/SEK ignored the activity data and the Riksbank company survey and thus remains stuck just below 11.00. Benign inflation data pulled Norwegian short rates lower and weighed on the NOK.