Key events in developed markets next week

Trade tensions remain high with President Trump threatening another round of tariffs on Chinese products imported into the US. China is not backing down, leading to growing worries about an intensifying situation that threatens global growth. Home builders are already warning about the higher costs from tariffs on lumber and other materials, and we suspect more industries will soon be vocalising their fears about the risks from a trade war. At this stage, we seem a considerable distance from an agreement that can calm market nerves.

The data calendar remains light with the main focus being housing data and consumer confidence. For now, demand and sentiment remain strong, boosted by record employment levels and growing signs of wage pressures. We will also be looking out for comments from Federal Reserve officials. The latest Fed forecasts suggest a growing appetite for two further rate rises this year, which we also expect will happen.

The Eurozone inflation numbers will be eagerly watched next week. While headline inflation will remain high thanks to oil price and base effects, core inflation developments will be key for the ECB to stay on course for its suggested path towards the end of quantitative easing.

After the announcement of dovish tapering on the back of a still positive macro assessment, next week’s German data will get close attention from the ECB. Ideally, a rebound in the Ifo with headline inflation above 2% for the second month in a row would be the best outcome for the ECB and strongest support for last week’s decision.

However, any disappointment, be it a weaker Ifo or falling inflation data, could clearly lead to doubts about the ECB’s determination to really push through with the anticipated dovish tapering.