Tier one data releases and US consumer confidence continue spiralling down

In focus today

In the US, the preliminary Q1 GDP is due for release this afternoon. Front-loading of imports ahead of the trade war pushed growth contribution from net exports deeply into negative territory, and we think GDP contracted by 0.1% q/q AR. Underlying private consumption growth likely remained steady ahead of the sharpest 'Liberation Day' tariff hikes. March PCE data and the Q1 Employment Cost Index will also be released at the same time but might gather less attention than usual given the focus on more timely data. Finally, ADP's private sector employment report will provide markets with the first sense of what to expect from the Friday's April Jobs Report. 

In the euro area, we follow inflation data from France, Germany, and Italy. It will be interesting after Spanish inflation yesterday surprised on the upside, both in headline and core inflation. 

Also in the euro area, we receive the first estimate of GDP growth in Q1 2025, which we expect to show that real GDP rose 0.3% q/q. Growth likely picked up in the first quarter of the year as indicated by PMIs averaging 50.4 compared to 49.3 in Q4 2024 and industrial production rising. We expect growth to once again be especially driven by Spain, while Germany should also show positive growth in Q1.

Economic and market news

What happened overnight

In China, we received manufacturing PMIs from Caixin (private version) and NBS. Caixin fell to 50.4 (prior 51.2), marking the weakest growth since January. However, a figure above 50 still marks the seventh consecutive month of expansion, suggesting that Beijing's stimulus measures are supporting economic recovery. NBS fell below expectations, coming in at 49.0 (cons: 49.8, prior: 50.5). Both output and new orders declined, but the fall was mostly driven by foreign orders shrinking the most in 11 months.

Though China claims it has positioned itself to be more resistant to the negative implications of the trade war, the setback in the PMIs illustrate well that tariffs of this magnitude is a loser's game. As pain grow on each side, we find it likely that the US soon approaches China and aim for a short-term deal agreeing to lower tariffs from the current high levels.

What happened yesterday

In the US, JOLTs Job openings declined more than expected (7.2m vs. cons: 7.5m) in March, so before the Liberation Day. Other details from the JOLTs report were not as concerning. Hiring picked up in March, and the number of involuntary layoffs declined. Overall, it seems labour market conditions remained relatively steady.

In line with expectations, the Conference Board's consumer confidence measure ticked lower for the fifth consecutive month. The decline was driven especially by the expectations component, while current situation assessment remained steadier. Most sub-components weakened as well, as more consumers thought jobs were "hard to get" and plans for big-ticket purchases (vacations, cars, homes etc) slowed down. Inflation expectations, unsurprisingly, ticked higher as well. We pay close attention to the 'hard' data that we'll get over the coming days/weeks, as consumer confidence surveys have not had the best correlation to actual spending during the recent uncertainty.

In the euro area, credit growth continued its steady increase in March. The annual growth rate of loans to households increased to 1.7% y/y in March (prior 1.5%), while loans to non-financial corporations increased to 2.3% y/y (prior 2.1%). Rising credit growth following lower interest rates is supporting growth especially in the industry. Yet, the growth rate remains quite low in a sign that we should not expect activity to rise sharply but only gradually. The credit impulse, which measures the 6-month momentum in credit growth, and is often better correlated with GDP compared to the annual growth rate of credit, also supports the latter view.

Also in the euro area, the preliminary inflation data from Spain showed stronger than expected inflation in April. Headline inflation fell to 2.2% y/y (cons: 2.0% y/y) in April from 2.3% y/y in March. The move was driven mainly by energy prices that have declined over the month, after rising in the same month last year. Euro area HICP inflation is expected to tick down to 2.1% y/y from 2.2% y/y and we see upside risks to that forecast now with Spain coming in higher than expected.

In Sweden, the GDP indicator for Q1 landed on the weak side of expectations (0.0% q/q, 1.1% y/y). Note though that the GDP indicator is historically unreliable and tends to not only be volatile but also underestimating actual GDP data. Retail sales for March showed a healthy +0.3% m/m increase (+3.6% y/y), which must be viewed as positive given that consumer confidence dropped from 94.6 to 89.8 during the same month.

Continuing in Sweden, the NIER Survey showed a roughly unchanged overall tendency indicator (94.8 vs 95.2 in March) but in the underlying numbers we note a clear drop in consumer confidence, which dropped sharply to 88.8 from 81.6. Manufacturing confidence rose from 96.4 to 99.6. Furthermore, the survey showed a large increase in inflation expectations among companies, up from 1.7% to 2.7%. Overall, we would view ETI as "normal", but the inflation expectations and price plans are hawkish for the Riksbank and makes it hard to motivate a near-term cut. 

In Norway, retail sales increased +0.6 % m/m in March (consensus: 0.3%, DB: 0.1%), taking the 3M/3m growth to 1.5% in Q1. Hence, the upward trend witnessed since last autumn continues, driven by higher real wage growth and fading headwinds from higher mortgage rates and saving ratios. The solid lift in retail sales could question the need for rate cuts, but keep in mind that a solid uptick in private consumption is well in line with our, and most other forecasters', expectations for 2025. That said, this was on the strong side of our expectations.

In the trade war, Trump signed orders to ease auto tariffs on the eve of his 100th day in office. The order gives carmakers two years to boost domestic component percentages in US-assembled vehicles, just days before 25% import taxes was set to kick off in automotive components. The order will not affect the 25% tariff on vehicle imports to the US.

Equities: Equities were higher yesterday. US markets posted solid gains with S&P 500 gaining 0.6%, close to day-highs. Market breadth was impressive, with little discrepancy between defensives/cyclicals, growth/value and so on. We interpret this as investors raising the overall equity allocation again, chasing the rally, rather than making selective bets. One unusual sector dynamic worth noting: Real estate and banks being top performers - at the same time. This is a combination few investors would buy into a few months ago but which makes fully sense now, as these sectors will benefit from a pause in the recession trade, but not get meaningfully impacted by the swings in FX or trade disruptions, if the tariff discussion would shift back again. US futures are heading lower this morning.

FI & FX: With risk appetite holding up well, US Treasury yields continued to drift lower, resulting in a modest bull steepening of the curve. In contrast, the 2Y German Bund yield was broadly unchanged around 1.74%, while the 10Y Bund yield fell 2bp, marginally tightening the transatlantic spread and continuing the recent convergence in US-European yield differentials. In an otherwise relatively quiet week, the USD found some support from the continued positive risk environment, bolstered by de-escalating tariff headlines - even as JOLTS job openings saw a larger-than-expected decline in March (ahead of Liberation Day). EUR/SEK has been in consolidation mode around current levels just below 11.00 for the last two weeks. Today, Norges Bank will announce its daily FX transactions (both fiscal and FX cap) for May. We expect an unchanged net NOK purchase amount just above 0.