GERMANY: Merz Says Trump Admin 'Open To Discussions' On Tariffs, Security & NATO
Reuters reports comments from Chancellor Freidrich Merz following his talks on 5 June with US President Donald Trump. Merz says that the Trump administration "is open to discussions" and to hearing other opinions. The chancellor confirms he and Trump discussed the war in Ukraine, tariff policies, and the future of NATO. Merz: "Trump was clear about not taking the US out of NATO, I have no doubts the US will stick with NATO." On foreign policy, Merz says that "In Washington, there does not seem to be a clear understanding of the extent of Russian armament.".
- On the high-profile issue of auto exports to the US, Merz says, "We must see if we can establish an offsetting mechanism for cars." A major economic (and political) issue for the German gov't is the potential impact of tariffs on car exports to the US.
- Former Chancellor Angela Merkel noted in a 2024 interview with Italy's Corriere della Sera, that “Trump was obsessed by the fact that, in his view, there were too many German cars in New York. He had always said that, if he were to become president, he would have imposed such high tariffs that they would have disappeared from the streets of Manhattan,”
- Merz says that he will talk to European Commission President Ursula von der Leyen about his visit this afternoon.
- Given the mauling some foreign leaders have received in the Oval Office in recent months, Merz's visit, which appeared cordial and well-tempered, will likely be viewed as a success by the gov't.
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FRANCE DATA: Employment Prospects Soft; Q1 Wage Pressures Ease
French employment prospects remain soft. Private sector payrolled employment was flat in Q1, according to preliminary estimates, while annual growth was -0.3% Y/Y (vs -0.1% prior). This softening in employment is consistent with recent falls in the EC’s Expected Employment Indicator, which has broadly been seen across industries.
- Employment references from the April PMI round were also weak:
- Services: “The latest survey data revealed there was a further trimming of employment across the French service sector in April. The nonreplacement of leavers was a common method through which workforce capacity was lowered, according to panel member reports. In some cases, firms cited recruitment difficulties. The pace at which jobs were shed was moderate overall”.
- Manufacturing: “There was a further fall in employment, albeit one that was only marginal and the softest in almost two years”.
- Construction: “Cutbacks to employment were once again made by French construction companies during the latest survey period, extending the current job shedding sequence to precisely a year. The extent to which workforce numbers dipped was moderate overall”.
- Preliminary Q1 wages rose 0.7% Q/Q, but annual growth eased to 2.1% Y/Y (vs 2.8% prior). The Indeed wage tracker has tracked at sub-2% levels through the year.
- This softening in compensation pressures is already being reflected in core inflation measures. In the April flash round, core HICP inflation was 1.7% Y/Y (vs 1.8% prior).
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EGBS: Spreads Vs. Bunds Tighter In Recent Trade
Spreads to Bunds are tighter in recent trade, without a clear headline catalyst.
- BTPs, OATs, SPGBs and & PGBs with a uniform ~1bp of tightening over the last 15 minutes or so.
- The move doesn’t line up with the latest round of German fiscal speculation and has actually deepened since Bunds bounced from lows.
- Demand at the latest OAT auction was solid but doesn’t seem strong enough to account for the tightening.
