Key events in developed markets next week

In the US the main data release to watch will be the 1Q GDP report. It is likely to be softer than the 2.9% rate recorded in 4Q17, mainly due to a weaker consumer spending contribution. We have seen retail sales being hit by weather and tax refund delays, but the retail sales figures for March and the strong consumer confidence readings suggest there is decent momentum as we start 2Q18. Government spending is also likely to correct lower and investment may also be a little softer. However, we expect the net trade contribution to be more positive in 1Q and inventories should also provide a boost.

We are a little above market, forecasting overall growth of 2.5% versus the consensus forecast of 2.1%. Interestingly various regional Federal Reserve Bank “Nowcast” models suggest anything between 2% and 3.4% growth. Either way, the US continues to grow nicely, create jobs in significant numbers and is seeing inflation moving towards target. As such we continue to forecast three additional Fed rate hikes this year.

The ECB will meet in Frankfurt next week and discussions behind closed doors on how to bring QE to an end should be heated, though without any clear conclusions. The big showdown will be the June meeting. Still, we will watch out for any signs between the lines by Draghi.

Additionally important for the ECB will be whether activity and sentiment continue to slide in the second quarter as survey data for 1Q was quite disappointing. The PMI on Monday will provide an insight into that.

The UK economy hasn’t had the best start to the year, and that’s likely to result in a slower first quarter GDP growth figure next week. Several waves of snowy weather undoubtedly played a part, resulting in disruption to both industry and retailers. But that doesn’t tell the full story. Consumer demand has remained stubbornly low, with some data pointing to the worst quarter in over five years for spending. This looks set to persist for a little while longer, which is one reason why the Bank of England may struggle to hike rates more than once this year.

Pressures for a new NAFTA deal are mounting with upcoming elections, the expiration of the US Trade Promotion Authority, the ending of the reprieve given to Canada on US-tariffs and the possibility of a US-China trade war drawing near.

However, although recent noises about NAFTA have been positive, with talks of a deal being signed by early May, there are still controversial issues that need tackling including government procurement, dispute panels, agricultural laws and the 'sunset clause'. We are therefore expecting a busy couple of weeks talks-wise with these being the hot topics to be discussed.

In Germany, the Ifo index should echo recent weak data. However, watch out. Due to technical changes of the index, at face value the drop could look worse than it actually is.