Equities rally, inflation in focus

In focus today

In the US, focus will be on the release of March CPI. The US is expected to report a slowdown in inflation, with consensus expecting headline inflation from 2.8% y/y to 2.5% y/y and core inflation consensus to drop marginally from 3.1% y/y to 3.0% y/y. The significant increase in tariffs has obviously raised the outlook for prices over the coming quarters, but Fed will be much more attentive to the 'organic' price pressures in the economy. Bond markets will closely watch tonight's 30Y US Treasury auction as an indicator of current market conditions.

In Sweden, the February GDP, production and consumption indicators are set for release at 08.00 CET. As retail sales and especially hours worked have already shown some improvement this month, there is a slight chance for positive readings for consumption and production as well. Riksbank's Seim will discuss the economy and monetary policy at 09.00 CET.

In Norway, March inflation figures will be released. Inflation surprised strongly on the upside in February, driven by food, airline tickets and restaurant prices. The big question now is whether this rise is the beginning of an acceleration in consumer prices, one-off effects that will be fully or partially reversed or one-off effects that will not be fully reversed. We believe most in the latter scenario, suggesting that while the annual growth rate may remain elevated, monthly growth is likely to decline. We anticipate core inflation to decrease to 3.3% y/y in March, partly due to somewhat lower growth in food prices and airline tickets compared to March last year. Based on the historical pattern, this forecast is probably in the lower part of the possible range, but it reflects the fact that February's figures were positioned in the upper part of the historical range.

In Denmark, we will receive inflation data for March. We expect a decrease from 2.0% to 1.7% on the back of particularly lower electricity and gasoline prices. Additionally, the unemployment indicator is scheduled for release. For more detailed insights, see Reading the Markets Denmark - EUR/DKK on the rise, 9 April.

Economic and market news

What happened overnight

In China, March consumer inflation came in slightly lower than expected at -0.1% y/y (cons: 0.0%) and -0.4% m/m (cons: -0.3%). The annual inflation figure was significantly higher than the -0.7% y/y observed in February. The NBS credited the enhancement to the impact of policies aimed at stimulating consumption, which are beginning to take effect.

In commodities, oil prices declined around 1% overnight, as Trump intensified his trade war with China, despite introducing a 90-day pause for most other countries. The benchmarks ended with a 4% gain yesterday after dropping as much as 7% earlier in the session. Brent spot now trades in the USD 64-65/barrel range this morning.

What happened yesterday

In the global trade war, Trump announced a 90-day tariff pause in the reciprocal tariffs to facilitate negotiations, while raising tariffs on Chinese goods to 125%. US Treasury Secretary Bessent asserted that the pullback had been the plan all along to bring countries to the bargaining table. However, the reversal on tariffs is not absolute; a 10% duty on most US imports remains, and duties on auto, steel and aluminium will not be affected by the softened stance. Additionally, the freeze does not apply to Canada and Mexico. Earlier in the day, China announced a tit-for-tat additional retaliatory tariff, raising duties on US goods by 50%, making the effective tariff 84% from today. Markets now price in below 50% of a near-term US recession, down from nearly 70% prior to the announcement. The S&P 500 rose 9.5%, marking the largest one-day increase since 2008.

In the US, the FOMC minutes revealed concerns over higher inflation amid slower growth and employment, with officials noting the challenging trade-off. This was very closely aligned with the takeaways from Powell's press conference and the SEP. Fed's Barkin was on the wire later yesterday, stressing the importance of consumer spending, which remains stable for the time being. Barkin noted that Fed's reaction function addresses medium-to-long term economic adjustments, with tariff policy duration being crucial for the assessment.

In the euro area, the EU council voted in favour of imposing up to 25% tariffs on EUR 21bn worth of US goods on products including soybeans and motorbikes, as retaliation for US tariffs on steel and aluminium. The response is less than 1:1, affecting US goods worth 0.14% of GDP and targeting products from Republican states. Upcoming EU negotiations will address larger tariffs as a response to the 25% car tariffs and 20% liberation day tariffs. The Commission aims for a "zero-for-zero" tariff deal with Trump and increased US energy purchases, but prospects remain uncertain. If no deal is reached, further EU counter-measures may combine tariffs and trade barriers on both goods and services.

Equities: After the worst trading days comes the best, taken to an extreme. Trump caving in sent S&P 500 10% higher in one go (!). This is a rare thing: It is the best session since Oct-08 and the third best session since WW2. As so, US equities have already regained most of the pullback since 2 April.

Naturally, this was a buy the dip session. Alike most rebounds it was cyclical large caps doing the outperformance. Tech stocks and consumer discretionary in the top, with Tesla, Apple and Nvidia surfing around 20% each. Asian markets are rallying this morning too, with Nikkei up 8%, Kospi 6% while China - stuck in the trade war - only 2% higher. European futures suggesting a 7% rally when markets are opening.

FI&FX: The Trump administration's decision to halt the planned reciprocal tariffs on most countries led to a massive rally in equities last night. The S&P 500 was up 9.5%, reverting around 2/3 of the drop over the past week, while tech stocks recorded the biggest one-day rise (+14%) since 2001. The 2s10s US Treasury curve flattened some 25bp driven by a significant rise in the short end of the curve. Markets revised the discounted year-end level for the Fed Funds rate up by 20bp following the tariff announcement. The broad dollar index (DXY) was almost unchanged throughout the session with EUR/USD dropping below 1.10 in the evening. EM currencies saw tailwinds, while havens such as CHF and JPY depreciated. Japanese equities (NIKKEI 225) are up 8% this morning, while Trump's decision to impose even larger tariffs on Chinese goods (now 125%) has damped the relief rally in Chinese equities to a more modest 1%. European equity futures are up by 8%.