Key events in developed markets next week

Most of the high-frequency data we’ve been tracking suggests that economic activity in the UK is more-or-less back to pre-Omicron levels. Card spending is almost exactly where it was at the same time in 2020, before the virus was circulating. Transport and mobility data suggests that, in London at least, the number of workers heading to workplaces is back to November highs. Sickness rates have also fallen with Covid-19 case numbers over recent weeks. We’d expect that to translate into a bounce in the services Purchasing Managers' Index (PMI) reading next week, though it’s worth remembering that these indices haven’t been as good at mapping onto GDP changes as they were pre-pandemic.

The Bank of England will be more focussed on any further clues the surveys offer on wage pressures. Its own survey suggested pay rises will be growing faster than they have done in several years, though there are still good reasons to think that a wage-price spiral won’t materialise in the UK. We expect further rate rises in March and May but continue to think markets are probably overestimating the pace of tightening this year.

Next week will reveal a fair bit about the mood in the eurozone. Geopolitical and inflation concerns are becoming more prominent, but at the same time Covid-19 restrictions are being eased and manufacturing is experiencing decreasing problems related to equipment shortages. The question seems to be which will take the upper hand in PMI and sentiment data.