Trade uncertainty continues to weigh on markets

In focus today

Today will be light on the macro front, with markets continuing to closely watch trade uncertainty and any signals from Trump.

In the euro area, focus turns to the consumer confidence indicator for April. Consumer confidence has declined in the past months following a great rebound last year, and the trade war uncertainty in April has likely amplified the development.

In Sweden, the latest unemployment figures will be released today at 8:00 CET. The concerning trend observed in recent months may persist due to significant uncertainties faced by companies, which likely suppress their willingness to hire. Although we anticipate a decline in unemployment towards the end of the year, it may take a few more months to be certain that we have surpassed the peak levels.

For the remainder of the week, the most important data releases are the PMI reports for April, scheduled for release on Wednesday. As the surveys were conducted after Liberation Day, the figures are likely to provide a first glimpse of the impact from tariff uncertainty. Importantly, any progress in the tariff saga - particularly in US-China trade negotiations - and shifts in global investor sentiment will continue to influence markets this week.

Economic and market news

What happened during Easter

In the US, retail sales growth in March (ahead of Liberation Day) remained solid, printing close to expectations at 1.4% (cons: 1.3%, prior: 0.2%). Lower gasoline prices dragged on the headline, while car sales edged up. While tariff concerns likely impacted some categories, sales growth in bars and restaurants — often a good measure of discretionary spending and not affected by tariffs — gained some momentum from February. Overall, the release suggests that the very gloomy consumer sentiment readings have yet to translate into hard data as negatively as some had feared.

The Philly Fed's manufacturing index weakened markedly in April, with new orders slumping to -34.2 from 8.7 in March. Hence, there are signs that PMIs for April will deteriorate in the first reading after Liberation Day.

During Easter, several Fed speakers were on the wire. Fed Chair Powell (hawk and voting member) emphasized that the Fed remains in a wait-and-see mode. Similarly, NY Fed President Williams (hawk and voting member) said that he does not see an imminent need for a change in monetary policy. Chicago Fed President Goolsbee (neutral and voting member) stated that he hopes the US is not moving toward an environment where the Fed's monetary policy independence is questioned, following Trump's recent attacks on Powell. Considering the upcoming week for the Fed, focus will naturally be on Trump's outbursts toward Powell, but attention will also be on several Fed officials scheduled to speak before the blackout period begins on Saturday.

In the euro area, the ECB cut policy rates by 25bp, bringing the deposit rate to 2.25%, as widely anticipated. Overall, the meeting was in line with our expectations, with the ECB conveying a dovish tone - noting the downside risks to growth, while downplaying the topside risks to inflation. Markets reacted by sending European yields lower on the statement, with further declines during the press conference. EUR/USD moved initially lower, but the weak Philly Fed reading provided some support for the cross. Looking ahead, we continue to expect the ECB to deliver 25bp cuts at the upcoming meetings, bringing the deposit rate to 1.50% by September 2025. We currently see downside risks to growth, inflation and rates in the medium term. For more detail on our assessment of the ECB meeting, please see ECB review - Dovish bias in troubled waters, 17 April.

In China, the 1Y loan prime rate and the 5Y loan prime rate were held unchanged at 3.10% and 3.60%, respectively.

Turning to politics, China has accused the US of abusing tariffs and warned other countries against striking deals with the US at China's expense. The remarks come after a Bloomberg article, citing sources familiar with the matter, reported that the Trump administration is preparing to pressure nations seeking tariff reductions or exemptions from the US to curb trade with China - including through the imposition of monetary sanctions. For more detail on how we currently see China's footing in the trade war, please see Postcard from China - 10 key takeaways from trip to China, 16 April.

In the UK, March inflation was lower than expected across the board, with headline at 2.6% y/y (cons: 2.7%, prior: 2.8%), core at 3.4% (cons: 3.4%, prior: 3.5%) and services at 4.7% (cons: 4.8%, prior: 5.0%). The largest downward contribution came from recreation and culture and transport, while clothing provided the largest upward contribution. The monthly momentum eased in services and in core services, which is the key measure for the BoE. With UK inflation surprising to the downside over the past months we think the BoE is set to continue easing, delivering its next 25bp cut at the upcoming meeting in May.

In Denmark, Danmarks Nationalbank followed the ECB, cutting its key policy rate 25bp to 1.85%.

In Canada, the BoC held its policy rate at 2.75%, as expected by markets. The BoC emphasized that monetary policy cannot fix trade uncertainty and reaffirmed its 2% inflation target. The MPR included two scenarios: one with normal trade, showing modest growth and steady inflation, and another with a prolonged trade war, forecasting recession and inflation above 3% next year. The neutral rate estimate was kept unchanged at 2.25-3.25%. Markets now lean toward a June cut, suggesting the BoC is pausing, not ending, its easing cycle amid tariff-related uncertainty.

In Japan, the nationwide inflation report for March, saw core CPI rise 3.2% y/y from 3.0%, in line with expectations. Excluding fresh food and fuel costs, the index increased 2.9% y/y from 2.0%. Governor Ueda was on the wire, reiterating that the BoJ will continue to raise interest rates if underlying inflation pressures continue to accelerate toward 2%. That said, Ueda also signalled a naturally cautious and flexible approach amid the uncertainty stemming from Trump's potential tariffs. We continue to expect the BoJ to normalize policy further, delivering additional rate hikes this year.

In Turkey, the CBT surprised markets hiking its policy rate by 350bp to 46%.

In commodities space, easing supply concerns tied to potential progress in US-Iran nuclear talks pushed oil prices down over 2% during yesterday's session. As of this morning brent is trading around 67 USD/bbl.

Gold prices continued its record high rally this morning, hovering around USD3488 per troy, driven by investors seeking safe-haven assets.

Equities: Looking at equity markets over Easter - a period with more public holidays in Europe than in the US - the overall direction has been lower. Over the past five trading days, US equities have fallen by a little more than 4%, while European equities are marginally higher. That said, US futures are pointing higher this morning, whereas European futures are slightly in the red. In terms of cyclicals versus defensives, the risk-off sentiment has been most pronounced in the US, with cyclicals down more than 5%, while defensives are down around 2%. Europe shows a similar but more muted trend, with modest defensive outperformance. In the US yesterday, the Dow declined by 2.5%, the S&P 500 by 2.4%, the Nasdaq by 2.6%, and the Russell 2000 by 2.1%. With yesterday's moves, the VIX is now back at 33 - a clear reflection of the current environment, where uncertainty is weighing on equities more than hard macro data. Year-to-date, European equities have outperformed US equities by nearly 15% when measured in local currency. However, the recent EUR/USD appreciation adds another ~12% headwind for investors who have not hedged the dollar, making U.S. equity exposure particularly challenging this year. This morning, Asian equities are trading higher, while European futures are lower, and US futures are marginally up.

FI & FX: USD continues to weaken on the back of the economic and political uncertainty in US as well as recent comment from Trump regarding Fed Chairman Powell and the need for "pre-emptive rate cuts" from the Federal Reserve. Short-end rates in the US have fallen since last week, but the long-end continues to rise in a steepening move. Following a dovish ECB meeting with a widely anticipated 25bp rate cut, European rates have rallied, which helped the SEK perform against EUR last Thursday, however, the negative international turmoil has caught up with the SEK and will likely push EURSEK levels back towards our post ECB-decision near-term fair-value assessment of 11.