Key events in developed markets next week

Of course the focus in the eurozone will be on how Covid-19 cases develop. But other than that, all eyes will be on the European central bank, which looks hesitant and partly also unable to follow the Fed. It will be Christine Lagarde’s first test case. She started off with the intention to bring monetary policy closer to the people. The ECB will have to balance between demonstrating its ability to act and the awareness that the economy needs a vaccine rather than additional monetary stimulus.

We could see a mix of several smaller measures like a 10bp rate cut, tweaks to collaterals, targeted longer-term refinancing operations (TLTRO) and an increase of the Corporate Sector Purchase Programme (CSPP).

Macro data continues to lag the virus' impact on the economy, making it difficult to get a good sense of whether the growth picture has already changed materially. Industrial production data for January will be released next week, which will obviously not yet capture any impact of the virus, but should provide relevant information for the start of the quarter, which matters for the 1Q figures.

Economic data is going to take the back seat once again as policymakers try and respond to the evolving coronavirus threat. However, we do have the preliminary March reading of the University of Michigan consumer confidence. A fairly substantial fall is likely given the plunge in equity markets and the negative headlines Covid-19 has been generating and this is likely to underline market concern about weaker economic activity data in the next few months.

All of the activity and inflation data scheduled for release next week is from the period before the fear factor hit so is irrelevant really. We know the US economy started 2020 on a firm footing, but that won’t count for much as spending slows and recession worries mount.

Coronavirus will overshadow next week’s budget, the first major fiscal event since the new Chancellor Rishi Sunak took charge in February. There will be a particular focus on any measures to ease cash flow constraints of affected businesses, in addition to the “Time to Pay” scheme that will enable some firms to pay tax back in smaller instalments over time. All of this means that the government’s scope to increase day-to-day spending will be even more constrained.

A fiscal rule contained within the Conservative manifesto commits the Chancellor to achieving a current budget balance within two-to-three years. Recent growth downgrades mean there is little – or perhaps even no – headroom to increase day-to-day spending without raising taxes, while achieving the fiscal target. The government is also looking at higher investment, although these plans are likely to come later.