Key events in developed markets next week

The US macro story remains positive with the economy posting vigorous growth, but the recent jobs numbers have highlighted supply constraints in the economy while inflation numbers continue to surprise on the upside. The data calendar is light this week so there is little to add to the debate other than to reinforce the message that the property market is red hot and regional manufacturing is performing well, albeit having to deal with supply shortages. Consequently, the focus is likely to be on Federal Reserve policy and whether President Biden can get traction in Congress with his spending plans. There are four Fed speakers currently scheduled and the minutes to the April FOMC meeting. Officials continue to indicate they think inflation is “transitory”, but rising price pressures are proving increasingly difficult to dismiss completely.

In Canada, CPI readings for April are likely to jump, similar to what we saw in the US. Certainly, part of this is down to comparing prices from lockdown last year to prices today in a reopening economy, but there are also other frictions, and given strong demand we could see more evidence of corporate pricing power emerging.

It’s a hectic week in the UK next week, and here are our four things to look out for:

• Reopenings and variants: Monday’s reopening of indoor hospitality is being overshadowed by rising rates of the India-originating Covid-19 variant in parts of the UK. The more positive news is that the vaccines do appear to be working against this strain - so far, prevalence has not really increased among the predominantly-vaccinated over-50s in affected areas.
• Employment (Tues): The jobs market has turned a slight corner since the start of the year: the furlough scheme has shielded the hardest-hit sectors against further redundancies, while hiring has picked up elsewhere. Expect another slight decline in unemployment this time. More importantly, the buoyant reopening means that most firms should be financially able to bring back most of their staff from furlough, before wage support ends in September. While unemployment is still likely to rise to around 6% when this happens, we think it could be falling again by year-end.
• Inflation (Weds): April data means we’re now comparing prices to the lows of the pandemic last year. Throw in a 9% rise in household energy bills in April, and the rate of headline inflation is likely to increase considerably from March. We expect headline CPI to exceed the 2% target later in the year, before drifting back below that level in 2022. For that reason, the Bank of England is unlikely to be in a rush to tighten before 2023.
• Retail sales and PMIs (Fri): More timely spending data points to another decent rise in retail sales, linked to the reopening of shops in April. And the broader economic outlook is aided by rising consumer and business confidence, as the vaccination programme offers greater optimism about the durability of the emerging recovery. This is likely to be main message from next week’s PMIs.