Key events in developed markets next week

The trade story will remain the key driver of market moves next week, with the ratcheting up of tensions intensifying market concerns about the outlook for the global economy. We see little reason for optimism in the near-term, as the market is likely to be looking towards the G20 summit in June when President Trump is expected to sit down with President Xi to discuss the situation. However, there seems little appetite from either side to back down and we suspect the situation will continue to weigh on sentiment and activity through the summer months. In terms of macro news flow, we will be hearing from several Federal Reserve officials. They are likely to take a slightly more downbeat line given the trade backdrop and mixed economic data flow. We continue to forecast no rate cuts this year, but if the data softens further we may need to re-evaluate this position.

The only data release of note will be durable goods orders, which will be heavily depressed by the swing in Boeing aircraft orders; 44 planes were ordered in March compared to just 4 in April.

Even though markets will focus a lot on the German IFO survey next week, the recent rollercoaster ride regarding trade means that it should be taken with a large pinch of salt. The survey's cut-off date for responses might have incorporated the recent escalation between the US and China, but the news that Trump has delayed a decision on EU car tariffs probably happened afterwards.

Both consumer confidence and PMIs in the eurozone will also be in focus - a close look at new export orders from the PMI seems especially interesting as they plummeted last month. More generally, a recovery of sentiment should be an indication of decent growth for the second quarter.

We will also have the European Parliament elections beginning next Wednesday. This should bring lots of interesting results at both the national and European level.

Back in January, the UK energy regulator OFGEM introduced a new price cap, which had the effect of lowering household energy costs by 6% on average. Three months on, the cap was increased by roughly 10% at the start of April, and this will have the effect of dragging headline inflation back above the Bank of England’s 2% target. That aside, the inflation backdrop looks relatively benign and we expect core CPI to remain just shy of the target for much of this year. For the Bank of England though, the prospect of further tightening hinges much more on wage growth. If pay continues to accelerate more quickly and the Brexit deadline is pushed back beyond October, then a November rate rise shouldn’t be completely ruled out. For the time being though, we think a combination of Brexit uncertainty and sluggish growth is more likely to keep the central bank on hold through this year.

The prospect of higher wage growth and benign inflation should give UK consumer spending a modest boost as we head into the summer. But following three months of strong increases in retail sales, we think a correction is likely in the April figures.