STIR: BoE Pricing Little Changed On Day, June Cut Possible But Unlikely

Key fiscal/economic measures announced by the incoming CDU/CSU/SPD coalition below. These broadly match the announcements seen in local media earlier today. Note that in Germany, an announcement of measures as part of a coalition agreement does not necessarily mean these will be implemented. Overall, the government seems to be planning to make use of the newly increased fiscal headroom:

• Reducing income taxes for small and medium incomes in the middle of the legislative period
• Investment "booster" in the form of amortization of equipment investment of 30% per year for the three years 2025-27
• After this has ended, decreasing the corporation tax in 5 steps by 1pp each starting January 2028 (currently standing at 15% of ~EBT but note that is not the only tax enterprises have to pay in Germany)
• Reduction of electricity taxes to the European minimum, reduce electricity network charges, abolish gas price levy, introduce a "industrial electricity price" for energy-intensive companies
• Make overtime bonuses tax-free, up to E2000/month tax-free labour work during pension, replace the "citizens income" by a "basic income" (compulsory job applications for unemployed persons and tougher sanctions)
• VAT decrease for food in restaurants by 12pp to 7% starting Jan 2026
• Increase of the minimum wage to E15/hour in 2026 (17% increase, agreement rather vague here though)
• Monetary incentives for EV purchases
• Plans to complete debt brake reform this year to "permanently enable additional investment"

Full coalition agreement pdf document available online, link here.

Norwegian March flash inflation is due tomorrow at 0700BST/0800CET. This is the first major datapoint since Norges Bank held rates at 4.50% in March, going against prior guidance for a 25bp cut. As such, it will be an important domestic risk event for the NOK, even as US tariff-induced risk sentiment and commodity price swings dominate price action in recent sessions

• Norges Bank’s March MPR and Bloomberg consensus expect CPI-ATE inflation at 3.4% Y/Y, which would be unchanged from February’s notable upside surprise (3.4% Y/Y vs 2.9% cons, 2.7% Norges).
• The February report saw broad-based strength across food and services categories, but we noted an outsized role for some volatile components such as air- and boat-fares. The key question for the March report is to what extent (if at all) some of the sequential February inflation uptick unwinds. Analysts expect a monthly NSA CPI-ATE reading of 0.1% M/M (vs 1.0% prior).
• For headline CPI, Norges Bank project 2.7% Y/Y, with analysts expecting a firmer 2.9% print (vs 3.6% prior).
• NOK strengthened notably through the course of March (though has since seen a dramatic tariff-driven reversal), but may not have occurred in time to have a meaningful downward impact on imported goods inflation.
• Swedish February activity data is due alongside the Norwegian inflation report tomorrow morning, placing focus on NOKSEK for the market reaction. The cross hovers just above support at 0.9147 (76.4% retracement of the March 2020 – March 2022 bull leg), and a clear breach of this level would strengthen a bearish theme.
• See below for a selection of analyst comments:

United States Trade Representative Jamieson Greer's testimony to the House Ways and Means Committee is set to get underway shortly. LIVESTREAM

• Yesterday, in his corresponding Senate hearing on the Trump administration's trade agenda, Greer signalled that the goal of the administration’s tariff policy is to negotiate a new series of trade deals.
• Axios notes that Greer said the tariffs are “both” a short-term negotiating tool and a long-term punitive measure. He also declined to call the tariff escalation a trade war, since “most countries have said they’re not going to retaliate.”
• Greer added that if countries present solutions for shifting the dynamic, the message to them is "we want to negotiate with you," per NPR.
• Ranking Democrat on the Senate Finance Committee, Senator Ron Wyden (D-OR), told Greer yesterday: “...Trump and his advisers have yet to provide an understandable explanation – any explanation – for what his tax hike on the American people is supposed to accomplish.”
• Senator Todd Young (R-ID) said: “...trade retaliation doesn’t fall on everyone evenly. It has a different impact on a New York tech firm than it might have on a Hoosier soy bean farmer. … In Indiana, rural communities and export-driven manufacturers oftentimes feel the consequences and they feel the consequences first.”
• If there is going to be a concerted move by Congress to rein in Trump’s authority to unilaterally impose tariffs, it is likely to come from farm and manufacturing state Republicans like Young.