US Retail Sales on today's menu

In focus today

In the US, a range of data is due for release in the afternoon. April retail sales will provide the first hard data evidence on how consumer behaviour has reacted to higher tariffs. April PPI will provide further sense of the cost pressures that US firms are facing after the tariffs took effect. First regional manufacturing indices from the NY Fed and Philly Fed will provide a more forward-looking sense of the business cycle.

In the euro area, we receive the second estimate of GDP growth in Q1 2025. The first estimate showed larger than expected growth at 0.35% q/q. Focus in the second estimate will thus mainly be on the employment data that we also receive. Employment growth slowed down in the final quarter of 2024 but remained positive at 0.1% q/q. Soft indicators point to broadly the same growth rate in Q1 2025 or slightly lower, overall indicating a stagnating labour market, but with record-high employment despite the weak growth.

Also in the euro area, we keep an eye on industrial production data for March, which likely increased further, in a sign that activity has bottomed out, but also with potential front-loading distortions from the US trade policy.

In Norway, we expect that mainland GDP rose by 1.0 % in Q1, marking the strongest quarterly growth in close to three years. This would surpass Norges Bank's March forecast of 0.6%, suggesting the potential need for rate cuts may be lower than expected. The big question is whether the Q1 recovery was influenced by unfulfilled rate cut expectations in March.

Also, the government will publish the Revised Budget 2025, with no significant changes expected in the fiscal policy framework. The withdrawal from the State Petroleum Fund will probably increase to around 3%, driven by lower fund values and increased support for Ukraine, with minimal impact on Norway's activity level.

In Sweden, we receive inflation expectations from Origo (Prospera). It will be interesting to see if there are any signs of rising expectations, as we saw among firms in the NIER survey.

In Japan, Q1 national account data will be released overnight. Even if Q1 is a long time ago, it is not irrelevant for the picture of the fragile economic recovery and the prospects for further rate hikes from the BoJ. Data out so far suggests close to a standstill in GDP, as import growth will likely constitute a drag following a comeback from Q4. Also, particularly a surge in food prices weighs on private spending. Wage increases will compensate for it once implemented over the summer.

Economic and market news

What happened overnight

In geopolitics, Thursday's peace talks in Turkey, focused on the Russia-Ukraine conflict, will unfold without the presence of President Putin and Trump, lowering expectations for significant progress. President Zelenskyy has earlier stated that he will attend only if Putin is present.

What happened yesterday

In the US, The Fed's Daly said late yesterday that the strength of US economy allows policymakers to be patient, which is well in line with comments heard from other FOMC participants since the May meeting.

In Germany, the final inflation print for April confirmed the flash release of 2.1% y/y in CPI and 2.8% y/y in core CPI. Core inflation was higher than expected in the flash release and the final estimate allows us to digest which categories contributed to this. The move higher was especially due to Easter being in April this year compared to March last year. This is visible as prices on package holidays rose 9.2% y/y, passenger transport 11.3% y/y, and air tickets 19.1% y/y. It suggests that the increase in April should be seen more as a one-off rather than a resurgence of price pressures in core services.

In Sweden, inflation figures have been released with CPI at 0.3% y/y, CPIF at 2.3% y/y, and CPIF excl. energy at 3.1% y/y, aligning with flash estimates. Core inflation was driven by international flight costs, while food prices rose 0.2%, slightly below the forecast. Energy prices and mortgage costs were in line with our forecast. Core inflation's surprise led to a 0.15 percentage point forecast error across all inflation measures. We expect inflation to remain slightly above target this year and return to target next year, anticipating the Riksbank will uphold its stance given the enhanced risk environment.

We also received minutes from the Riksbank, revealing board consensus on higher-than-usual uncertainty. While elevated core inflation is expected to soften, the tariff impact is deemed marginal. The board views the economy as weaker than March forecasts, suggesting easing inflationary pressures and a potential rate cut as a next step. We consider a rate cut becoming more likely, but June is premature, with timing uncertain thereafter.

In China, April's credit data revealed a sharper-than-expected decline in new loans to CNY 280bn (cons: CNY 700bn), amid ongoing trade tensions with the US that have further dampened market appetite during a typically slow month for loan demand. The M2 money supply surprised to the topside, rising by 8.0% y/y, reflecting the government's stimulus efforts.

Equities: Equities lost steam on Wednesday. Most regions were lower, including Stoxx 600 -0.5%, Nordic -0.4% but S&P 500 up 0.1% (but equal weighted -0.6%). So, the US outperformance continues, although it is entirely subscribed to the MAG 7 stocks. S&P 500 is now up 9% over the last month, a few decimals ahead of Stoxx 600. Although indexes took a breather yesterday, risk-on remains with a clear cyclical preference. Futures are a notch lower this morning together with Asian markets.

FI&FX: The post trade-deal risk rally is losing steam with notably the JPY marking a comeback over the last 24 hours with USD/JPY moving back to 146. In the Scandies, EUR/NOK has rebounded back above 11.60 while EUR/SEK is back close to the 10.90 mark. Despite a temporary spike higher EUR/USD is close to unchanged since Tuesday evening. Overnight, USD rates have rallied somewhat driven by the short end resulting in a slight steepening pressure. This has reversed the USD flattening/rise in USD rates from yesterday's session where NOK rates notably underperformed European peers.