Key events in developed markets next week

The next Federal Reserve meeting is on 4 May and market expectations are firmly centred on a 50bp interest rate increase. St. Louis Fed President James Bullard has raised the possibility of a 75bp hike, but he is generally considered the most hawkish member of the FOMC and no other members have openly discussed this scenario. As such, we continue to look for 50bp moves in May, June and July before the Fed switches back to 25bp hikes thereafter given quantitative tightening will be up and running at full speed in late 3Q as the Fed seeks to shrink its $9tn balance sheet quickly.

The coming data shouldn’t impact this outlook meaningfully. 1Q GDP data is expected to show the economy expanded at a 1-1.5% annualised rate, which would mark quite a deceleration from 4Q 2021’s 6.9% rate, reflecting the Omicron wave of the pandemic that impacted people movement quite considerably. However, recent data has pointed to a renewed uptick in activity and we expect to see stronger GDP growth for the second quarter. Durable goods orders should also be healthy based on regional manufacturing data, the ISM report and higher Boeing aircraft orders. That said, we anticipate a bit more weakness in the housing data as surging mortgage rates take some of the steam out of the housing market.

The eurozone is anxiously awaiting the next inflation figure, which will no doubt be above 7% again. The question is mainly whether it is again higher than the 7.5% seen in March or whether the decline in oil and gas prices since early March has translated into a small drop in headline inflation. We expect the former to be the case, also because of second-round effects from energy prices on core inflation. On a more positive note, GDP growth for 1Q is also due out on Friday and is expected to have remained positive despite disruptions to production and high inflation.

There's been a huge seachange in rhetoric from Riksbank policymakers since the last meeting in February. Back then, policymakers were officially projecting no change in the repo rate before 2024. That thinking always looked unlikely to hold for long, and in fact a string of officials - including Governor Stefan Ingves - have effectively given the green light to multiple rate hikes this year in recent comments. There's an outside chance the first could come next week, though we think this meeting will be more about making the major forecast shifts required to lay the groundwork for higher rates - including a hefty upgrade to the inflation projections.

We had previously pencilled in the first hike for September, though it looks increasingly likely that this could come in June.