Inflation theme continues, with core PCE release due

• European markets underperform as Starmer looks to avoid UK tariffs.

• French inflation drops to 0.8%.

• Inflation theme continues, with core PCE release due.

European markets are underperforming once again this morning, with the optimism around a potential deal in Russia being cast aside for concerns around a potential tit for tat trade war with the United States. Germany stands in line to feel the repercussions most keenly, with Trump touting a potential 25% tariff on EU car imports.

Kier Starmer’s appearance of the White House appears to have gone as well as it could, with the president seemingly open to a favourable trade deal that will avoid tariffs on UK exports to the US. This should come to no surprise given the trade deficit the UK currently holds with the US, standing in stark contrast to the surplus enjoyed by the European Union.

This morning saw French CPI slump to 0.8% for February, highlighting the downward trajectory likely to kick in for eurozone inflation over the coming months. While we patiently await the German CPI release later today, market pricing around the potential for an additional four rate cuts this year has ticked up from 46% to 50% (according to Eikon). Nonetheless, with heightened tariff fears taking hold, the prospect of a collapse in eurozone inflation does start to raise questions over the health of the economy.

Looking ahead, the US inflation takes centre stage, as equity bulls looks towards the Fed favoured core-PCE price index release as a potential risk. With the FOMC taking on a hesitant approach in the face of rising inflation expectations under Trump, today is a chance to prove the case one way or another. The presumption that Trump’s tenure will be inflationary does rely on higher spending, higher tariffs, and a strong economy. Thus far we have seen signs of inflation emerging from the manufacturing sector, although that could be offset by a services sector which appears to be cooling (see latest PMI) .