Key events in developed markets next week

Inflation data will be a key highlight in the eurozone next week. Now above the central bank target at 2.2%, the drop in oil prices will no doubt have an effect, although this has not worked through to prices at the pump one-for-one.

The prominent Ifo index of business sentiment should shed some light on whether the German economy is likely to regain momentum in the final quarter of the year or whether a disappointing third-quarter performance was more than just a soft patch.

At the same time, headline inflation should drop somewhat but not as much as the latest drop in crude oil prices might suggest. The dry summer weather and low water levels in many rivers have led to transportation bottlenecks, pushing up gasoline prices. The price difference between crude oil prices and gasoline prices has widened significantly.

After a strong first half of the year, we expect a very weak 3Q GDP report from Sweden on Thursday. We expect only 0.2% quarter-on-quarter growth, and the risks to that are mainly to the downside.

Some of this weakness is temporary – a new tax on cars came into force in July, which caused significant front-loading of car sales (boosting 2Q GDP at the expense of a weaker 3Q). But near-term indicators point to a broader slowdown over the autumn, with the rapid contraction of new construction, in particular, likely to weigh on growth. In that context, the November Economic Sentiment Indicator (on Wednesday) will also be an important data release, as it speaks to the current momentum in the economy. If both the 3Q figure and the November ESI disappoint this would reduce the chance of a Riksbank hike in December.

There was good news for Canadian growth in September. The trade deficit was squeezed further, manufacturing sales saw an uptick on the month and we expect the same for retail trade. All of which contribute to our forecast of 0.3% growth month-on-month.

We also expect healthy growth for the third quarter overall though it won’t be as strong as the 2.9% posted in 2Q – we're looking for 2.2%. Dips in construction starts typically precede an economic slowdown, and that’s exactly what we’ve got here (for clarity, construction starts fell 23% QoQ). But it’s not as if this was unexpected. The housing market is in a difficult situation. Factors such as excess supply (linked to affordability issues), higher borrowing costs and tighter mortgage rules are holding back residential investment, and we see this lower trajectory sticking around for a while.