Morning from Copenhagen.

We seemingly have a trade deal between the US and the UK coming up, although it wasn’t much of a surprise given that the UK is one of the few countries with which the US actually runs a trade surplus. The lack of reaction across GBP markets signals that this news was largely anticipated.

However, the trade balance data from March tells a more revealing story. The deficit with the European Union has plummeted, offering a clear sign that the frontloading of goods has primarily come from Europe to the US, rather than from China. This likely explains why European PMIs have held up relatively well while Chinese PMIs look dire. The frontloading has created an economic buffer in Europe, while simultaneously generating a disinflationary buffer in the US—as companies stockpiled goods at old prices. It also helps explain the continued outperformance of European assets, which were already priced pessimistically even before tariffs became a dominant market theme (see Chart 1c).

Still, high-frequency activity gauges in Europe show that growth has sharply rolled over. This suggests that the global economy is now running on buffers created by frontloading—buffers that resemble the excess savings dynamic during COVID. Once those buffers fade, activity may prove quite vulnerable.

Chart 1a: U.S. Goods Trade Balance by Country