Inflation releases conclude the week

In focus today

In the US, The Fed's preferred measure of inflation, the Personal Consumption Expenditures (PCE), will be released in February. In the afternoon, University of Michigan's revised March consumer sentiment survey is also due for release. While the revisions are not usually in focus for markets, we will pay more attention to consumer sentiment given the political uncertainty.

In the euro area, we will closely follow the March inflation data from Spain and France, that we get ahead of the euro area aggregate on Tuesday next week. We expect the euro area HICP inflation to decline from 2.3% y/y to 2.1% y/y due to energy and services inflation. We forecast core inflation to decline to 2.4% y/y from 2.6% y/y.

In Sweden, a new wage agreement might be announced any time from today, ahead of the 31 March deadline, due to significant pressure from expiring contracts. Last week's proposal included a three-year deal at 7.7%, with higher initial wage agreements and a decreasing profile - lower than expected and potentially indicating downward risks on wage forecasts. Additionally, Swedish retail sales for February will be published, with sales showing strong momentum last year, though January's decline and low consumer confidence could indicate downward trends continues into February.

In China, the official PMI for both manufacturing as well as services will be released for March early Monday. Consensus is a small increase in both indices, but we see a good chance of an even bigger increase based on a strong pick-up in the high-frequency Yicai index as well as the Emerging Industries PMI for March, which has already been released. A pick-up in metal prices in March also points to improvement in the manufacturing sector. 

Economic and market news

What happened overnight

In the US, Susan Collins from Boston Federal Reserve said that it was inevitable that inflation would rise on the back of the tariffs, but unclear how long it would last, and that rates should be on hold. Fed's Barkin said the businesses could be "on hold" given the policy uncertainty and the Fed should be on hold as well.

In commodities space, gold prices have surged to $3,076.79 an ounce, as tariff plans from the US, together with fiscal policy, geopolitics and growth slowdown fuels uncertainty leading investors to adopt a risk-off approach seeking save havens.

In Japan, Tokyo CPI numbers for March were released. The print was on the strong side, with core CPI (CPI excl. fresh food) ticking up to 2.4% y/y (cons: 2.2%, prior: 2.2%), fueled by higher food prices. The release is typically a good indicator of the nationwide CPI measure, which is scheduled for release in the coming weeks. Overall, the reading supports the case of further rate hikes from the BoJ. We pencil in two 25bp rate hikes from the BoJ for the remainder of the year, with the next likely in July.

What happened yesterday

In the US, the final release of Q4 GDP 2.4% (cons: 2.3%) was revised slightly upwards, primarily due to a less negative contribution from inventories. Weekly jobless claims remained steady.

Yesterday's announcement of 25% car tariffs has created division among US trading partners. Notably in the opposing camp, Canadian Prime Minister, Carney, has declared the longstanding Canada-US relationship as over, advocating for a renegotiation of the trade agreement. Moreover, President of the European Commission, Von der Leyen, has announced negotiations of new measures to safeguard the economic interests of the bloc.

In the euro area, credit growth continued to increase in February in the euro area. Credit growth to households increased to 1.5% from 1.3% in January and for NFCs to 2.2% from 2.0%. Hence, the lower monetary policy rates are transmitting into the economy, which supports the arguments of the hawk camp in the ECB. Yet, the absolute revel of restrictiveness of monetary policy is better estimated by the "growth impulse" which measures the momentum in credit growth and is often a better predicter of GDP and the annual growth rate of credit. At a level of 1.17% of GDP, the credit impulse remains still quite low in a historical perspective when considering the 150bp cuts the ECB has delivered so far. Hence, we see this as an indication that monetary policy is still restrictive, also as the impulse has remained flat for the past year.

Regarding yesterday's ECB speeches, signals were a mixed bag, as widely expected. We note that members of the Governing Council have repeatedly flagged the topside risk to inflation from tariffs rather the dampening effect on growth. To us, this highlights a gradual shift in how the ECB views the balance of risk.

In Norway, the policy rate was kept unchanged at 4.50% by Norges Bank (NB). Importantly, NB maintained its easing bias with the rate path indicating two rate cuts in 2025 and a 25% probability of a cut in June. In light of the unchanged decision, we revise our NB call to two 2025 rate cuts (September and December), three cuts in 2026 and a final cut in 2027 bringing the sight deposit rate to 3.00%. We highlight the importance of the ongoing central wage negotiations. An outcome below 4.5% would open the door for a June cut. For a more in depth interpretation.

Equities: Equities were lower, but not as bad as one might think after the news on auto tariffs. S&P 500 -0.3% and Stoxx 600 index -0.5%. US stocks have outperformed European equities with two percentage points the last two weeks. We attribute this to oversold conditions and will not try to chase it. We recommend focusing on the fundamentals that keep favouring Europe. Derisking still taking place below the surface, with staples and health care outperforming while tech (Nvidia), industrials (cars) and energy lower. Pricing power is key when it comes to the new tariffs, hence Volkswagen only down 1.5% while Chrysler-parent Stellantis slumped 4.2% and BMW 2.5%. French automotive supplier Valeo sank 8%, after saying it could not absorb recent tariffs and would have to raise prices. On the other end, European real estate stocks 2% higher, on European yields dipping following Trump's auto tariff announcement. US futures are marginally higher this morning.

FI&FX: EUR/USD continues to hold around 1.08 and we expect further consolidation between 1.08-1.09, with predominately upside risks. EUR rates were little changed through yesterday's session, while EGB curves saw a bullish steepening. In a highly awaited monetary policy announcement, Norges Bank yesterday decided to keep rates unchanged at 4.50%, however they maintain their easing bias with the rate path indicating two cuts in 2025. Broad SEK remains supported, although we see near-term topside risks mounting in major SEK-crosses.