US ISM manufacturing in view as we await “Liberation day” volatility

European equities are on the rise in early trade, coming in stark contrast to yesterday’s fear-fuelled sell-off ahead of tomorrows tariff announcement from Donald Trump. His widely touted “Liberation day” has done a good job of liberating the world of any certainty, and even global leaders appear unable to predict exactly what will happen tomorrow. The UK efforts to stave off any initial period of damage appear to have fallen on deaf ears, although Starmer remains hopeful that the UK is well positioned to reach a trade agreement with Trump in the coming weeks. Nonetheless, that leaves the UK economy positioned to be dealt economic damage for a short-term period at the least, denting the outlook for exporters. This morning saw a welcome upward revision to the manufacturing PMI, although the 44.9 recorded represents the lowest reading in 17 months. With UK producers having to deal with the rising costs of the national minimum wage and national insurance contributions, the impending tariff disruptions only serve to exacerbate the already difficult environment for UK manufacturers. Today marks the beginning of “Awful April”, with price rises kicking in across the board. The imposition of a new higher energy price cap (6.4%), increased water costs (+26% average), an average 5% rise in council tax, and a raft of other new costs point towards a renewed inflationary surge that could undermine the welcome decline in UK CPI seen last week.

Eurozone inflation moved lower for the month of March, with core CPI in particular showing an impressive 0.2% decline to 2.4% despite expectations that it would remain flat. The declines for both headline (2.2%) and core (2.4%) serve to highlight the downward trajectory for prices that could eurozone inflation fall below the 2% target in the coming months. With both core and headline monthly figures coming in relatively hot at 0.6%, the 1.1% March 2024 core reading highlights how base effects provide the basis for disinflation to the annual figures. Nonetheless, with stories hitting the newswires around a potential April pause from the ECB, there is a growing feeling that the US tariffs could bring a potential inflationary uncertainty that may push a more hesitant approach from central banks around the world for the time being.

Looking ahead, manufacturing remains in the spotlight, with the ISM manufacturing PMI expected to bring fresh insights into the direction of travel for prices and the behaviour of US producers. That plays into the wider theme of tomorrows “Liberation day” tariffs, with traders weighing up whether this is a buy the dip opportunity or part of a longer standing period of uncertainty that will weigh on stocks. While countries such as the UK might stand in a good position to strike a deal, there is a risk that tomorrow marks the beginning of a tit-for-tat trade war that brings yet more uncertainty and concern for markets. The expected retaliation from Canada, the eurozone, China, Japan, and Korea does signal that it could get worse before it gets better.