Good morning from Copenhagen!

Yesterday’s PCE print delivered a semi-hawkish tone, with income growth surprising to the upside and CPI-PCE narrowing—a hallmark of inflation downtrends. Meanwhile, ISM paints a split picture: Manufacturing shows promise, while Services signal a slump. In Germany, labor market sentiment remains muted amid economic uncertainties and limited ECB flexibility. Bonds remain solid, USD equity markets hold appeal, and EUR strength against the Dollar looks promising.

We are starting to see early signs that the Trump tariffs, which spooked markets three weeks ago, may not be as extreme as feared. The messages we are receiving from the Trump administration admittedly favor fading the tariff trade—lower USD, lower yields, etc.

Trump posted a tweet yesterday stating that he has apparently made a deal with the new president of Mexico to stop the influx of illegal immigrants into the US. This is a strong hint that the tariffs targeting Mexico will be much more benign (if they come at all). USDMXN is down 1.2% as of writing, and it seems like markets are buying into this narrative for now. We have been anticipating a U-turn in the tariff policy of the Trump administration, and it’s slowly but surely materializing.

We should probably get used to these kinds of dynamics with Trump as president, where one tweet or statement has the power to move markets significantly. We don’t yet know the details of the call he had with Mexico, and USDMXN could still move >1%.

Chart of the Day: No Tariffs Targeting Mexico?