Key events in developed markets next week

The eurozone focus will be on the ECB next week. The central bank will look through any temporary increases in headline inflation and will not tolerate significant moves in bond yields unless they are the result of improved growth prospects. The bank's decision to front-load asset purchases at the last meeting was meant to cap the rise in yields, which have tracked moves in US Treasuries.

The cyclical story is actually improving despite lockdowns being extended. Yes, it will take longer for the big rebound to happen, but economic activity is already improving despite lockdowns still being in place. April survey data from PMIs and consumer confidence will provide more information but we're confident that the second quarter will mark the start of the recovery.

The data calendar is fairly light in the US next week so we will be following the progress of Joe Biden’s infrastructure plan. There is little sign of bi-partisanship on the $2tn package and it seems that the Democrats are going to push it through the reconciliation process to avoid the need for 60 Senators to agree to put it to a vote. Nonetheless, not all Democrats are fully on board, meaning we could yet see changes to the package, especially surrounding the taxation part. Nonetheless, the recent macro data has been painting a very upbeat picture of economic activity and job creation while there is growing evidence of emerging inflation pressures that we think could result in earlier Federal Reserve interest rate rises than the 2024 start data officials are currently indicating.

In Canada, we will see a big jump in annual inflation, which follows on from some good activity and employment numbers. This means that there is a strong chance we see another tapering of the Bank of Canada’s QE purchases, which have already been cut from C$5bn per week to C$4bn per week although actual interest rate increases remain some way off.

There’s plenty of UK data to get our teeth into next week, though much of it is likely to paint a relatively calm, mid-lockdown and pre-reopening picture of the economy. Here’s a summary of what to look for:

• Jobs data (Tues): Payroll-based data suggests employment has turned a corner since the start of 2021, and indeed outside of the hard-hit consumer services sector, the jobs backdrop has been improving. We don’t expect any drastic changes in this latest data covering the three months to February, but it is likely that we see a gradual grind higher in the unemployment rate towards 6% over the summer as we edge towards the date when the furlough scheme is due to be discontinued (September). Still, the subsequent recovery in the jobs market will, we suspect, be faster than after past crises.
• Inflation data (Wed): After February’s surprisingly low reading, we’re likely to see headline CPI bounce back somewhat, albeit we’ll have to wait until April’s data for more seismic changes. Like everywhere else this is when base effects begin to become more prominent, but also there’s been a sharp 9% rise in the household energy price cap. We expect inflation to exceed 2% later this year, mainly on energy prices, before dipping back in 2022.
• Retail sales (Fri): Credit card data points to another modest rise in retail sales in March, albeit spending is still some distance below the levels at the end of last year. However evidence from past reopenings suggests it won’t take long for sales to recover to pre-Covid levels in April and May.
• PMIs (Fri): Optimism about reopening is likely to lift the services PMI further, though this hasn’t been a particularly reliable gauge of GDP movements during the pandemic. Still, the general tone is consistent with healthy 2Q activity, where we expect GDP growth in the region of 5%.