EA inflation declined, and US JOLTS surprised to the topside

In focus today

In the US, the ADP private sector employment report will provide markets with the first sense of what to expect from Friday's upcoming May Jobs Report. The ISM services index for May will also be released, the flash PMI pointed towards a small uptick. Atlanta Fed's Bostic is scheduled to give remarks at a local Fed Listens event.

In the euro area, we receive the final services and composite PMI data for May. The final manufacturing PMI on Monday showed the same reading as the preliminary release, namely 49.4, so we also expect the composite PMI to be close to the preliminary data.

In Canada, the Bank of Canada will publish its interest rate decision. Analysts are split on an unchanged decision and a 25bp cut. We lean towards the former but highlight that it is a low-conviction call amid continued trade uncertainty.

In China, PMI service from Caixin will be released overnight.

In Denmark, we will receive the unemployment indicator for May from the Danish Agency for Labour Market, our first status on the Danish labour market in May.

In Sweden, we will receive services PMI for May at 8.30 CET. The manufacturing sector saw a slight decline (staying nearly unchanged on Monday), maintaining a solid figure of 53.6. The service sector has been weaker compared to manufacturing, staying below 50 for two consecutive months. Employment has risen in manufacturing but has been weak in the service sector.

The Danske Morning Mail will not be released tomorrow, 5 June, due to Constitution Day, but we are back with an update on Friday. Tomorrow, we will look out for the ECB monetary policy meeting, where we anticipate a 25bp cut in the leading policy rate to 2.0%. Also, in the US, the May Challenger report for layoff announcements as well as the weekly jobless claims will provide further sense of the status of labour markets.

Economic and market news

What happened overnight

At Danske Bank, we published our new macro forecasts for the Nordic countries and the major economies. Read more in Nordic Outlook - Normalisation with tariff risks, 4 June.

What happened yesterday

In the euro area, inflation declined to 1.9% y/y in May, in line with most recent forecasts following country data but below the initial consensus forecast of 2.0% y/y. Core inflation declines to 2.3% y/y from 2.7% y/y, below expectations of a decline to 2.4%. The decline in both headline and core inflation was mainly due to services inflation, that fell from 4.0% y/y to 3.2% y/y. Euro area unemployment in April remained unchanged at 6.2%, in line with expectations.

In the US, JOLTS job openings surprised to the topside, coming in at 7.391M in April (prior: 7.2M., cons.: 7.1M). Hiring also ticked a bit higher against expectations after 'Liberation Day'. That said, involuntary layoffs edged modestly higher as well (1.79M, from 1.59M).

In Switzerland, inflation decreased in line with expectations, reaching deflationary territory for the first time since 2021. Headline inflation came in at -0.1% y/y (cons: -0.1%, prior: 0.0%) and core inflation at 0.5% y/y (prior: 0.6% y/y). With this print, inflation has come in lower than SNB projections yet again and we expect a 25bp cut at the next meeting on 19 June, bringing the policy rate to 0%.

The OECD has lowered its global growth forecast to 2.9% for 2025-2026, citing the impact of Trump's trade policies. US growth is expected to slow to 1.6% this year due to tariff-related uncertainties. China's growth is partly offset by subsidies and welfare spending, while the euro area's outlook remains stable. Increased protectionism could further weaken growth and heighten inflation pressures.

In the Netherlands, the Dutch government collapsed after Geert Wilders' PVV party left the coalition, likely leading to new elections in October or November. Wilders accused coalition partners of not supporting his strict immigration policies. Prime Minister Dick Schoof resigned, leaving a caretaker administration that may delay NATO-related defence spending decisions. The political landscape remains divided, with immigration a longstanding contentious issue in Dutch politics.

Equities: Equities were higher, and cyclicals made a comeback on Tuesday. S&P 500 added 0.6% (Russell 2000 1.6%) while Europe lagged with Stoxx 600 0.1%. This was the first time in a week that cyclicals did better than defensives on a global scale. It has been three weeks since cyclicals beat defensives numerous sessions in a row. Similarly, investors looked for beta in small caps for the first time in a long time yesterday, with small caps outperforming cyclicals by the double. Although headline indices have carried on, the de-risking taking place in sectors and styles has brought technicals to more sustainable levels. Just take the Fear and Greed index which has returned to almost neutral levels. Asian markets are in risk-on this morning (Taiwan and Kospi up 2-3%) as investors are cheering the election outcome, as it is likely to entail more fiscal stimulus. US futures are a notch lower this morning, while European futures indicate some catch-up.

FI and FX: Stronger domestic data, with hirings advancing to the highest level in almost a year, prompted a turnaround in the greenback yesterday. EUR/USD fell back below 1.14 again and USD/JPY breached 144 anew. 30Y US treasuries are once again testing the 5%-level, which we expect to be breached as investors require a higher premium for buying US treasuries currently. EUR/CHF rose on the back of deflationary Swiss inflation data, opening the door for a potential 50bp cut at the SNB meeting later this month. The SEK underperformed G10 peers with selling persisting through the session, making NOK/SEK briefly trading above 0.9500 before falling back slightly. We have updated our Riksbank call and now expect the rate to be cut by 25bp, to 2%, in August. As for NBP, we expect them to leave the key rate unchanged at 5.25% at today's monetary policy meeting. This morning, we have released updated macro forecasts, to be found in Nordic Outlook - June 2025.