Morning from Copenhagen

Another day of market stress is unfolding as panic o’clock nears. We’re seeing a fresh wave of risk-off sentiment with the Nikkei tumbling and JGB yields collapsing—evoking strong echoes of last summer’s turmoil. Trump has demanded “phenomenal” offers in exchange for lowering tariffs, and the message from sources suggests we should treat this paradigm as the new normal. That’s not exactly comforting, especially since the market continues to bet on a near-term reversal of this regime. Personally, I’m getting less convinced by the day that such a U-turn is coming

It’s interesting to see how the anticipated forward easing shifted inward on the curve after yesterday’s ISM Services report, which printed smack dab in line with our forecasts. As a result, the yield curve is steepening again — for example, the 30-year sector barely budged during yesterday’s receiver party.

We’re seeing clear signs of a shifting macro environment in the Service sector: employment is now declining, and service sector prices have likely peaked. These twin developments point to a broadly cooling economy, which strengthens the case for moving yield easing expectations inward on the curve. Rate cuts as early as May or June are increasingly plausible, and under current conditions, we shouldn’t rule out the possibility of emergency-style easing if the data deteriorates further.

Chart 1: The employment PMIs are in contraction territory