Key events in developed markets

The upcoming July activity and inflation data is likely to be very constructive, but unfortunately, in the market’s mind, this is the long and distant past and doesn’t reflect the current situation of escalating US-China trade and geopolitical tensions. The fear is that recent developments will hit sentiment, lead to higher costs and damage supply chains. In turn, this will hurt profitability and make businesses more reluctant to invest and hire new workers, which could result in a broader economic downturn. Therefore while the small business sector, industrial production and retail sales may all post decent gains for July, the story may not be so positive for the rest of the year. As such, the market has moved to price in a greater chance of aggressive Federal Reserve interest rate cuts and it will, therefore, be trade and political developments that will drive market moves rather than the economic data next week.

Next week will shed light on how broad-based the eurozone industrial slump really is. German data for June was rather alarming and the question is whether the problem is mainly centred around Germany or whether it is more widespread across the monetary union. Also important is the data on eurozone trade, which is due out on Friday. For now, eurozone exports have held up rather well and the pain was felt more in the production of intermediates. June data on trade will provide more insight into the impact of global trade uncertainty on eurozone exports.

Amid a busy week for UK data, what really stands out is that wage growth may well hit another post-crisis high. While an uplift in public sector wages back in April is partly behind the recent acceleration in regular pay growth, it’s also true that skill shortages in the jobs market are pressuring firms into lifting earning levels more rapidly. This has been a lone hawkish factor for the Bank of England and means that despite a more benign consumer price inflation backdrop, talk of a rate cut seems a little premature.

Having said that, there’s not too much to be cheery about in the UK growth mix at the moment. Retail sales are likely to have slipped back in July, despite a more favourable backdrop for real wage growth.

Despite the deteriorating global growth backdrop, the Norwegian central bank has hiked interest rates twice since the start of the year. And while there’s a clear risk that trade tensions intensify further, the strong domestic story suggests Norges Bank could hike rates again in the second half of this year. Breakeven rates in the energy sector are considerably lower than current oil prices, according to the central bank, and this is translating into substantially higher investment.

So it’s really a question of “when” rather than “if” when it comes to another Norges Bank rate hike. We have been pencilling in December for the next move, although it looks increasingly likely that it could occur as soon as September. The central bank has a habit of explicitly flagging rate hikes at the meeting prior to the move, so we’ll be watching next week’s statement for a clearer signal – although given that a lot could still change on trade between now and September, policymakers may choose to keep their options open.