Euro area investor confidence set to regain lost ground

In focus this week

Today in the euro area, we receive the Sentix investor confidence indicator, which will give the first status of sentiment in May. The index fell greatly in April as it was conducted just after Trump's "Liberation Day". Now, that equities have rebounded and the tariff outlook seems to be less aggressive compared to a month ago, it is expected that sentiment will recover some of the lost ground.

Additionally, we receive the final euro area PMI data for April on Tuesday and March retail sales data on Wednesday.

On Wednesday in the US, the FOMC meeting takes place, and markets have now almost fully priced out any change for a Fed cut this week following the strong jobs report Friday last week.

On Thursday, we expect the Bank of England (BoE) to cut the Bank Rate to 4.25% in line with consensus and market pricing. Inflation has surprised to the downside over the past months and combined with elevated uncertainty and downside risks to growth from the trade war, we expect the MPC to deliver slightly dovish commentary. Read more in our Bank of England Preview, 2 May.

Also on Thursday, consensus expects Norges Bank to stay on hold at 4.50% at their monetary policy meeting. Recent data figures have been to the neutral side as of late, but if anything to the hawkish side. 

Economic and market news

What happened overnight

In oil markets, ICE Brent Crude prices declined some 3.7% due to downwards pressure from the OPEC+ announcement over the weekend to increase oil production in June.

In the trade war, US President Trump initiated a 100% tariff rate on foreign made movies as he seeks to protect Hollywood. This could impact several big media companies significantly, as Walt Disney, Netflix and Universal Pictures all film in foreign countries.

In the US, President Trump stated that he would not remove Fed Chair Powell, despite continuing to call for further rate cuts from the Federal Reserve. This marks a complete reversal from his previous stance on considering Powell's removal.

What happened over the weekend

In the trade war, Beijing said it was considering how to address the concerns about China's involvement in the fentanyl trade to restart trade talks. This follows China's commerce ministry stating that it was assessing recent US requests to engage in discussions. Especially equity markets rallied on the back of both Chinese statements.

In the euro area, HICP inflation remained at 2.2% y/y in April, slightly above initial consensus expectations of 2.1% y/y. The stronger-than-expected data was due to core inflation that rose more than expected to 2.7% y/y from 2.4% y/y in March, presumably a result of Easter occurring in April. We expect headline inflation to average just above the 2% target in the coming months, which supports further rate cuts from the ECB at the upcoming three meetings.

Final euro area manufacturing PMI was revised slightly up in April to 49.0 from 48.7 in the preliminary release. This takes the index on the highest level since August 2022 and makes April data significantly higher than the preliminary consensus expectation of a decline to 47.4. Hence, April did not show the immediate negative impact on growth that was feared in the manufacturing sector, which is most directly affected by tariffs. 

In the US, the April Jobs Report was stronger than expected with April NFP at +177k (forecast +130k, Mar. 185k, revised by -58k). Average hourly earnings growth slowed to +0.2% m/m SA (from +0.3) and the unemployment rate remained steady at 4.2%. At the same time, labour supply experienced a significant increase of +518k. Interestingly, while Trump's immigration policies are starting to have an effect on foreign-born labour supply (-700k), domestic labour supply increased very sharply (+1.2M). All-in-all, it was a solid report, pushing EUR/USD lower and UST yields higher. Markets have now almost fully priced out any change for a Fed cut this week, and markets are also pricing in less than a 50% chance for a Fed cut in June.

In Norway, the non-seasonally adjusted unemployment rate dropped to 1.9% in April, below expectations at 2.0%. New vacancies rose significantly to above 50', the highest since 2022 so demand for labour continued to be very solid into Q2. Figures should be neutral ahead of Norges Bank next week, but if anything to the hawkish side. 

Manufacturing PMI dropped to 46.1 in April, indicating a sharp slowdown in manufacturing activity into Q2. Details were also weak, as new orders dropped to 38.2 and production to 46.5, whereas employment was more stable from 54.2 to 53.0. The Norwegian PMI can be very volatile on a monthly basis, especially in an Easter month like April. Hence, we assess the numbers with a pinch of salt.

Equities: Last week delivered yet another remarkably strong performance for equities, with gains recorded across all five trading days. Once again, the US led the charge, underpinned by renewed optimism and increasingly constructive expectations around the trajectory of the trade war. With the rally, markets are now clearly above the 2 April (Liberation Day) levels. Notably, Friday marked the ninth consecutive positive session for the S&P 500.  Cyclicals continue to outperform in the current environment, though in Europe, defensives performed broadly in line with cyclicals last week. This was due to the notable shift in the pharma sector performance, which staged a significant comeback, likely reflecting reduced investor concern over trade-related risks and tariff threats to the industry. In the US on Friday, Dow +1.4%, S&P 500 +1.5%, Nasdaq +1.5%, Russell 2000 +2.3%. Asian equities are trading higher this morning, while futures in both the United States and Europe point slightly lower.

FI&FX: Global bond yields rose on Friday on the back of stronger US Labour market data and ahead of this week's main event the FOMC meeting on Wednesday, where the Federal Reserve is expected to stay on hold despite the political pressure from the White House. There will again be focus on the US Treasury market as the Treasury has to sell USD 125bn in 3Y, 10Y and 30Y bonds during the week. In the currency market, EUR/USD continues to be range-trading. Oil prices declined as OPEC agreed on increasing production.