US preliminary May trade balance data in focus

In focus today

In the US, the final Q1 GDP data is set for release today. However, preliminary May trade balance data could be more interesting to follow, as it gives the first sense of how imports evolved amid the fluctuating tariff rates.

In Sweden, NIER will unveil a new batch of economic indicators at 09.00 CET. Consumer confidence has been historically low, and we would expect to see an upturn in today's release. Despite the recent uncertainty around both geopolitics and tariffs, companies have reported a more normal economic situation. We will look closer at companies' price plans, particularly in the retail sector, which despite moving somewhat lower in the past readings remain at elevated levels.

In Japan, a range of data will be released overnight, including retail sales and Tokyo inflation figures. Consumers' reluctance to spend is not least related to the high food inflation. It will be interesting to see how retail sales performed in May and how Tokyo prices have developed in June.

A string of Federal Reserve members will be speaking today as well as from ECB, including Schnabel. The market will again be looking for comments on monetary policy as well as comments on easing banking regulation in the US.

Economic and market news

What happened yesterday

In the US, Fed Chair Powell reiterated inflation concerns related to Trump's tariff plans during his Senate testimony, emphasising the need for caution to avoid persistent inflation despite calls for rate cuts this year. Powell's careful stance continues to diverge from President Trump's push for immediate rate reductions. We expect quarterly rate cuts starting from September, closely aligning with market expectations.

In Sweden, the Riksbank's June minutes were "neutral" relative to the decision and MPR. The MPR was more dovish than we expected, reflecting comfort with the inflation forecast despite elevated price plans and core inflation. Geopolitical risks and impacts are debated, with diminished upside risks to the tariff-negotiations compared to the May meeting, supporting the rate cut decision alongside weaker Q1 GDP data. Discussions on further rate cut conditions are minimal, with Thedéen advising against over-interpreting the rate path signal. We anticipate the Riksbank will act if growth remains weak and inflation pressures remain absent.

At the NATO summit, the 32 members have agreed to boost defence spending to 5% of GDP by 2035, as strongly advocated by US President Trump, and reaffirmed their commitment to mutual defence under Article 5 of the Washington Treaty - "that an attack on one is an attack on all". Countries will allocate 3.5% of GDP to core defence and 1.5% to broader defence measures. Despite the consensus, Spain expressed that it could meet its NATO commitments with lower spending, drawing criticism from Trump, who warned of potential trade consequences.

Equities: Equities ended marginally lower yesterday, but beneath the surface the tone was distinctly more constructive. Cyclicals underperformed, while the VIX slipped below 17 - reinforcing the narrative that appetite for US large cap tech and cyclicals has returned. Almost overnight, concerns around trade wars and geopolitics have receded from market consciousness, and macro data no longer seems to be weighing heavily on equity sentiment. In the US yesterday, Dow -0.3%, S&P 500 +0.00%, Nasdaq +0.3%, Russell 2000 -1.2%. Asian equities are trading mixed this morning, while US and European futures are essentially flat

FI and FX: EUR/USD gained ground during yesterday's session edging closer to the 1.17 mark fuelled by rumours of Trump looking to name a replacement for Powell already in the autumn. Following the dovish surprise cut from Norges Bank EUR/NOK has continued on a steady upwards trajectory, breaching the 11.80 mark. In yield space, there has been a modest decline in global bond yields as the ceasefire between Iran and Israel is holding up as well as Powell replacement rumours and the Federal Reserve is proposing to reduce the SLR from 5% to 3.5%-4.5%, which should make US banks able to buy US Treasuries. Hence, 10Y US Treasuries declined a few bp in Asian trade this morning. Oil remained fairly steady during yesterday's session.