Key events in developed markets next week

The US's solid if unspectacular growth story remains consistent, in the mind of the market, with a Federal Reserve on hold for a prolonged period. However, we are somewhat nervous that the growth story is not quite as strong as headline figures would suggest. Moreover the coronavirus is creating significant uncertainty and there are fears that if the virus spreads rapidly, it could impact consumer and corporate behavior more broadly. Equity markets are clearly nervous and the bond market is flirting with inversion once again – where it is cheaper for the government to borrow long term versus short term.

This week’s data flow is therefore likely to play second fiddle to these health concerns even though top tier figures are due for release. The ISM manufacturing index may get a lift from better regional data in the wake of the US-China trade agreement, while confidence is likely to be buoyed by the robust equity markets (as of the time of the survey questions being asked). Construction should also get a lift from the increasingly strong housing data while the jobs report is likely to post another increase in the 140-160,000 range. The key number for us though will be wage growth. It slipped back to 2.9% YoY last month having threatened to break above 4% early last year. Any further weakness would reinforce our caution on spending, especially if the virus concerns intensify in the weeks ahead.

Retail sales will likely come in weaker in December, as the rising popularity of Black Friday brought spending forward to November. Nevertheless, it doesn't look like the sales environment has suffered too much. Overall, consumer spending continues to look decent despite economic uncertainty.