Key events in developed markets

The Federal Reserve is clear that it would take a big shift in the economic outlook for them to alter monetary policy after implementing three rate cuts through the second half of last year. There appears to be general contentment that that policy adjustment has stabilised the economic situation and with Presidents Trump and Xi set to sign the phase one trade deal on 15 January, protectionism fears should become less of headwind for growth (at least for the next few months). Nonetheless, the relative performance of the economy will have implications for the Presidential election given that Donald Trump will want to see a robust jobs market and rising asset prices, as the battle for the Presidency heats up.

The coming data flow should, in general, remain consistent with the view that the economy is growing respectably, if unspectacularly. Business surveys are currently consistent with GDP growth running at a touch under 2% and this week’s NFIB small business survey should continue that theme. Industrial production is likely to correct lower after the surge seen in November, which was (literally) driven by auto output restarting following the conclusion of the GM workers' strike in plants across the country. Retail sales could be interesting, too. Car sales were softer, which should drag down the headline figure, while anecdotal evidence has suggested that department stores had a tough holiday season period. This though should be more than offset by non-store sales, given that Mastercard reported internet purchases were up 18.8% year-on-year. Rounding out the releases we should see consumer price inflation remaining broadly in line with the 2% inflation target.

In a busy week for UK data, keep an eye on inflation where a fall in petrol prices should keep the headline rate fixed for now. But as we move into 2020, expect inflation to dip as a sharp decline in water bills and to a lesser extent other regulated energy costs feeds through. With wages growing more quickly, this should add a bit of support to consumer spending over coming months, albeit the trend is likely to remain relatively lacklustre.

Don’t expect to see evidence of that just yet though; retail sales figures out later in the week may well disappoint, following numbers from the British Retail Consortium suggesting the festive period was not great for the high street.