Key events in developed markets next week

It is mainly second-tier data that will be published over the coming week with durable goods orders and the personal income and spending reports set to be the highlights. The former should get a boost from very strong Boeing aircraft orders, which suggests growing optimism about a reopening economy and a full recovery in the travel industry. We still expect to see strength when this volatile component is stripped out, given the firmness in the ISM orders components and low customer inventories in an environment of strong consumer demand.

The personal income and spending figures will see a reversal after the boost from the $600 stimulus cheques in the January data. This weakness won’t last long given the latest $1400 stimulus payment has been hitting bank accounts over the past week with March’s figures set to be even stronger than January for both income and spending.

We also have six different Federal Reserve members speaking next week including a joint appearance to the Senate Banking Committee from Fed Chair Jerome Powell and Treasury Secretary Janet Yellen on Wednesday. Given the move higher in longer-dated bond yields it will be interesting to see whether that is making them nervous. Almost certainly we will hear a narrative that inflation risks are overblown, but in an environment of a supply-constrained economy that is experiencing massive stimulus-induced demand, we certainly think inflation will be higher and more sustained than the Fed has publicly stated. Consequently, we expect the Federal Reserve to end up tapering its asset purchases before the end of the year and think the bank will start raising interest rates by the summer of 2023 and not wait until 2024 as the Fed dot plot diagram currently suggests.

Next week will shed light on how March is shaping up in terms of eurozone economic performance. The PMIs will provide insight into whether the strong manufacturing rebound has continued and whether services have profited from the small improvements in mobility seen in Google data. Expect March data to remain subdued as a whole as lockdowns in the larger eurozone economies continue to weigh on activity, meaning that an overall contraction in 1Q GDP is hard to avoid at this point.

The Swiss National Bank meets on Thursday for its first monetary policy meeting since the beginning of 2021. We do not expect any major changes from the SNB, with the policy rate expected to remain at its historically and globally low level of -0.75%. However, the environment has improved significantly since the last meeting, thanks to better inflation and growth prospects around the world, which has led the Swiss franc to depreciate against the euro to its lowest level since 2019.

The SNB's headache has therefore diminished significantly. Nevertheless, it is unlikely that the SNB will fundamentally change its stance. We expect it to continue to insist that the Swiss franc is still highly overvalued and that it is still prepared to act in the foreign exchange market if necessary.

There's a lot of data coming through in the next week, and here are the highlights:

• Jobs: Having risen through the autumn, the November extension of the furlough scheme has helped add some stability to the jobs market over recent months. Expect the unemployment rate to remain stable and indeed stay that way through the first half of the year. The rate will inevitably rise when furlough ends, currently set for September, though the fact that this extends well beyond the planned reopening phase should help minimise the number of viable jobs being lost.
• Inflation: Like everywhere else this is really the calm before the storm, but it probably won't be until the April data before we see a real jump in the inflation rate. Reopening price spikes and more favourable energy base effects should help lift inflation back to target in the second half of the year, though unlike the US, we think it's more likely that it dips back through 2022.
• PMIs: Services set to rebound on rising optimism about the reopening, but manufacturing may (counterintuitively) dip assuming supplier delivery times improve a little. Brexit disruption caused these to rise massively, though the way the PMIs are calculated means this has pushed up the headline number in recent readings.
• Retail data: Expect only a partial recovery after January's sharp fall in sales. However past experience from lockdowns suggest it'll only be a matter of weeks before this mounts a full recovery once the shops reopen in April, though the shift to online is unlikely to be fully returned and pressure on high street businesses will continue.
• Covid-19 data: Very few cases have been detected as a result of school reopenings, which bodes well for the next stage of reopening. The question is whether many new cases have been generated through increased mixing now classrooms have been open a couple of weeks, but in any case the Easter holiday should act as a natural brake on transmission. Meanwhile it's likely to be another bumper vaccine week and the bulk of over-50s are likely to have had the jab by the end of March. Thereafter, supply is expected to dip and focus will shift significantly towards second doses during April.