US PCE data concludes the week

In focus today

• In the US, US PCE data for May is due for release. Earlier CPI and retail sales data indicate moderating price and real consumption growth. The revised June University of Michigan consumer sentiment survey is also expected.
• In Norway, we expect unemployment and retail sales figures. Following a surprising jump in unemployment in May, the upcoming data will reveal whether this signals a real weakening of the labour market or reflects changes in the way NAV registers the unemployed. We anticipate the adjusted SA unemployment rate to be unchanged at 2.1%, although the number of unemployed individuals may increase. Retail sales have shown strong growth since the end of last year, driven by high real wage growth, a tight labour market, and a shift from service consumption. We believe May's retail sales saw an approximate 1% SA decline.
• In Sweden, the producer price index has been trending lower since the turn of the year, with both y/y and m/m figures negative for the past three months. May's data release is expected to continue this disinflationary trend.
• In the euro area, focus turns to the June's first inflation reports from Spain and France, preceding the euro area print. We expect euro area HICP inflation to increase to 2.0% y/y (prior: 1.9%), driven entirely by rising energy inflation. Importantly, we expect core inflation to continue grinding lower to 2.2% y/y (prior: 2.3%), reflecting ongoing disinflation in services following an Easter-related uptick in April.

Economic and market news

What happened overnight

In Japan, the Tokyo CPI excluding fresh food came in lower than expected at 3.1% y/y (prior:3.6), still above Japan's target of 2%, and fuelling market expectations for further interest rate hikes. Core inflation (excl. fresh food and energy) printed at -0.4% m/m June, which follows a 0.1% national print in May. May's retail sales growth slowed to 2.2% y/y from April's 3.3%, falling short of market expectations of 2.7%. These data points will be pivotal in the upcoming BoJ rate review scheduled for 30-31 July, where new quarterly growth and price forecasts will be issued.

In China, industrial profits dropped -1.1% y/y in the first five months of the year, reversing a two-month growth streak, according to the National Bureau of Statistics.

What happened yesterday

In the US, final Q1 GDP was revised down to -0.5% Q/Q AR (prior: -0.2%) driven by weaker private consumption ahead of tariffs. May's preliminary trade balance data showed the goods trade deficit widening to -96.6bn (prior: -87.0bn), indicating renewed front-loading of imports following the US-China trade deal. Durable goods orders saw a sharp increase of 16.4% m/m, largely driven by aircraft orders. Continuing jobless claims edged higher but remain historically modest.

There were several comments from Fed Officials yesterday - Fed's Daly stated that tariffs may not lead to a large or sustained inflation surge and thus opening for an easing in the autumn. Fed's Collins indicated July would be too early for a rate cut. Lastly, Fed's Barkin signalled that increased average tariff rates could push inflation higher, stressing policy uncertainty but affirming the Fed's readiness to tackle evolving economic challenges.

In Sweden, NIER released their Economic Tendency Indicator, showing a slight decline from 94.5 to 92.8. Manufacturing dropped from 100.1 to 99.3, while retail trade saw a significant drop to 96.3 (prior: 103.7). Household sentiment improved modestly to 84.6, though it remains low. Retail sector price plans decreased, a positive sign for the Riksbank, despite small declines in prices for durable and non-durable goods, which remain elevated.

In the UK, BoE's governor Bailey noted employment tax hikes impact pay and jobs, not prices, amid inflation uncertainty. Despite holding rates at 4.25%, Bailey emphasised a restrictive policy stance to curb persistent inflation, with potential rate cuts expected in August, as the labour market shows signs of easing.

Equities: Goldilocks is (almost) back - at least through the lens of market performance. Less than a week after the geopolitical risk premium spiked on fears of an expanded Middle East conflict involving the US in the Iran/Israel conflict, risk sentiment has remarkably recalibrated. Equity markets pushed higher (again) yesterday, with several major indices either breaking into new all-time highs or inching very close. The VIX continued to grind lower (again), cyclical sectors outperformed defensives (again), and true to form in this type of risk on minimum volatility lagged (again). To qualify for goldilocks we need have yields lower of course, so please check your screen as see the short end of the US curve (again). In the US yesterday, Dow +0.9%, S&P 500 +0.8%, Nasdaq +1.0% and Russell 2000 +1.7%. This morning's picture in Asia is more mixed, though Japan stands out with a strong ~1.5% gain following softer-than-expected inflation data.US. and European futures are also higher.

FI and FX: EUR/USD has set new year-to-date highs above 1.17 as the USD extends its losses. Together with the USD, SEK was yesterday's loser within G10 space as we saw EUR/SEK crawling above 11.10 again. EURUSD XCCY basis has tightened significantly this week. The 1Y tenor has tightened more than 2bp to the tightest level since March. The catalyst seems to be upcoming changes to US banks supplementary leverage ratio. There was a decent decline in US Treasury yields yesterday as well as a steepening of the yield curve on the back of weaker than expected Q1 GDP numbers from the US as well as speeches from various Federal Reserve officials that are indicating forthcoming easing of monetary policy despite the potential impact from Tariffs.