Key events in developed markets

Markets are gearing up for the Conservatives to succeed in their quest for a majority at Thursday’s election. But as we found out in 2016 and 2017, things are rarely so simple in UK politics. While polls do indeed suggest the Conservatives should prevail and gain a majority, the gap between the two major parties doesn’t need to narrow much to deliver another hung Parliament. Given the Conservative’s lack of potential partner parties in Westminster, this scenario could feasibly see Labour form a minority government. Either way, the outlook for Brexit is unlikely to be straightforward as we move into 2020. Read our full election analysis here

The Federal Reserve decision will be the focus next week, but after having cut interest rates a cumulative 75bp over July, September and October officials have indicated a preference to pause. Financial markets are looking in good shape with equities close to all-time highs and the yield curve having re-steepened while recent macro data, although not particularly strong, suggests little prospect of a recession at this stage. As such it is likely to be a “no change” outcome with the press conference emphasising the data dependency for future decision making.

We continue to see the risks skewed towards more rate cuts given the ongoing uncertainty regarding trade and protectionism while the weak global backdrop and strong dollar are also headwinds to growth. We expect two rate cuts, likely straddling 1Q and 2Q20.

Data wise, inflation is likely to remain broadly in line with target at 2% while retail sales will be keenly awaited to see if there is any rebound after a weak couple of months.

The Eurozone focus will mainly be on the ECB as Lagarde will run her first monetary policy meeting and press conference as ECB president on Thursday. Her speeches have mainly focused on fiscal spending and greening so far, making this maiden press conference interesting to hear her view on monetary policy.

Besides that, keep an eye out on the EU summit on Thursday and Friday. Some reform progress has been in the making, although a deal on changes to the ESM are far from a done deal given Italian opposition over recent weeks.

In terms of data, industrial production will be interesting. Will the cautious signs of bottoming out seen in surveys translate into hard data?

The focus in Sweden this week will be on inflation numbers where we expect CPIF to come in around consensus of 1.5% year-on-year but below the Riksbank’s forecasts of 1.7% YoY – although the risks are tilted to the upside. It will also be interesting to see in the next quarterly Prospera inflation expectation survey - which includes long-term views on inflation by both employers and employees organisation. A recent downturn in expectations suggests the next round of wage negotiations could be less positive than hoped.

Nonetheless, the Riksbank is keen to exit negative rates and next week’s data is unlikely to stop a December interest rate hike.