Fra Danske Bank:
Sofie Grundvad Pedersen, [email protected] , Assistant Analyst
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Today we will receive the flash PMI data for May in the euro area, the UK and the US. In the euro area, following a historical decline in the services PMI to 47.6 in April from 50.2, the May data will be very important for assessing the growth outlook. The services PMI is expected to remain broadly unchanged at 47.7, while manufacturing is expected to edge slightly lower to 51.8 from 52.2, leaving the composite at 48.7 from 48.8. In the US, markets are looking for a clearer read on business activity after the March and April releases were at least somewhat distorted by longer delivery times and front-loading of orders.
We also receive the euro flash consumer confidence indicator for May, which is expected to remain unchanged at a low level. The European Commission will publish its economic forecasts, which will provide an interesting assessment of the impact of the war in Iran on the economic outlook. European Commissioner Dombrovskis has already noted that the forecasts will show lower growth and higher inflation projections.
Overnight, countrywide CPI inflation will be released in Japan. Tokyo data suggest headline inflation (excl. fresh food) declined in April from 1.8% in March, as consumers are being shielded from higher oil prices by government subsidies. Unlike for other central banks, greater certainty in energy markets will likely increase the chances of near-term rate hikes from the Bank of Japan (BoJ).
Economic calendar
We have changed our Fed call and now look for two hikes coming in December 2026 and March 2027, read more in Research US – Fed Update: Strong nominal macro warrants tightening bias , 21 May.
In the US‑Iran conflict , President Trump said the US is in the ‘final stages’ of negotiations with Iran, but his latest comments suggest Washington is prepared to wait a few days for ‘the right answers’ from Tehran and still stands ready to respond militarily if talks fail. Previous optimistic statements have been followed by renewed escalation, and the two sides remain in a tense stalemate. Oil markets reacted with Brent Crude down nearly 6% to around USD106/bbl.
Japan’s May flash PMIs show momentum fading. Manufacturing remained in expansion, but growth slowed, with firms stockpiling amid Middle East‑related supply disruptions and rising costs. Services stagnated, ending over a year of continuous growth. Input prices rose at the fastest pace since 2022, and firms raised selling prices at a record rate, though still lagging cost inflation, underscoring mounting pressure on margins and rising downside risks to Japan’s recovery. BoJ policymaker Koeda’s recent comments suggest the BoJ could respond with another rate hike as soon as its 15-16 June meeting if cost pressures stay elevated and growth holds up.
In the US, the FOMC minutes underlined a deeper policy split following the divided rate decision. While the Committee kept the fed funds rate at 3.5-3.75%, a majority now judge that “some policy firming would likely become appropriate” if inflation, amplified by the Iran war’s impact on energy prices, remains persistently above 2%. A majority would have preferred to remove the easing bias from the statement, reinforcing a more hawkish tilt that markets will scrutinise closely.
In the ECB space, a Reuters sources story suggests the case for a June rate hike is now “nearly sealed” as the inflation outlook shifts towards the adverse scenario. However, policymakers are likely to avoid pre‑committing to further moves, with many preferring to wait for the September projections. Even a peace deal in Iran before the meeting would not change much near term, as elevated energy prices are expected to persist.
In the euro area, final HICP inflation for April confirmed the flash estimate of 3.0% y/y with core at 2.2%, and price pressures remain largely confined to energy. The LIMI measure of domestic inflation continued to decline. Overall, the April inflation report supports a more cautious response from the ECB as the inflation shock is still highly contained, but it is still early days of the supply shock’s propagation.
In Germany , March manufacturing order data were strong, with unfilled orders up 1.6% m/m and 8.4% y/y, driven mainly by domestic demand and likely reflecting the fiscal package. The solid order book helps explain robust PMIs ahead of the Iran war shock. Higher energy costs should weigh on activity later this year, with May PMIs offering further insight.
In the UK, April CPI surprised on the soft side, with headline inflation at 2.8% y/y (cons: 3.0%) and core at 2.5% from 3.1%. The decline was driven by regulated price resets. Food inflation showed no signs of spillovers, which is a key place the Bank of England looks for spillovers. GBP initially weakened but later recovered, and both the labour market report and April CPI support keeping rates unchanged in June.
In Denmark, Q1 GDP grew a strong 1.9% q/q, boosted by rising pharmaceutical production. Excluding pharmaceuticals, growth was a more normal 0.2%, in line with elsewhere in Europe. The economy has not stalled but is weighed down by renewed declines in construction investment. Private consumption rose 1.1%, driven by a 10.6% jump in car sales.
Equities: Equities moved higher yesterday, driven by renewed hopes around US-Iran negotiations and, by extension, a potential reopening of the Strait of Hormuz. With oil prices falling and optimism improving, the equity market delivered a more or less full risk-on session. Cyclical growth and momentum led the market higher, while defensives, minimum volatility and value underperformed, with energy at the bottom of the sector ranking.
The equity rotation was interesting in itself, but the most important signal came from the bond market, where the long end of the curve moved lower. The conclusion is that a potential resolution around Iran and a reopening of Hormuz is currently dominating the rising concern around debt imbalances and fiscal deficits. That is absolutely crucial for our cross-asset call right now, and it goes without saying that we were very pleased to see yesterday’s market reaction and rotation. Asian equities are continuing the positive trend this morning, led by South Korea, which is up 8% at the time of writing. Futures in Europe and the US are more mixed this morning.
FI and FX: The last 24 hours have generally been characterized by lower energy prices and lower yields on the news story of progress on a US-Iran peace deal. President Trump said the US is in the “final stages” of negotiations with Iran, fuelling hopes of a diplomatic breakthrough. Similar optimistic comments in the past, however, have been followed by renewed escalation, and the two sides remain in a tense stalemate, with Iran blocking the Strait of Hormuz and the US blockading Iranian ports.
Even if yields have rebounded somewhat overnight the 30Y Treasury yield is now still at 5.12% – clearly below yesterday’s ~5.20% peak – while Brent Crude is trading at USD 106/bbl. European government bond yields declined around 10bp across tenors with Italy and the UK outperforming. In FX space the ZAR and HUF have been the biggest outperformers while the move higher in EUR/USD was very limited with the spot now settling just north of 1.16. In the Scandies, NOK/SEK has moved below 1.01 as the decline in energy prices has limited the NOK’s potential from lower global real rates while the SEK was an expected top performer within G10 FX.
See also our in-depth FI and FX morning comment *
FX Forecast Update – USD debasement has come to an end , 21 May
Sweden: Inflation forecast – Low inflation now, gradually rising prices ahead , 21 May
Reading the Markets Denmark: Danish government bonds performing , 21 May
Research US – Fed Update: Strong nominal macro warrants tightening bias , 21 May
Reading the Markets USD – The case for a tightening bias , 19 May
China Flash – Data shows broad based weakness in April , 18 May
Report completed: 21 May 2026, 07:00 CEST
Report first disseminated: 21 May 2026, 07:30 CEST
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