Key events in developed markets next week

The data highlight next week will be the 2Q GDP report from the US as we finally find out how large the largest ever quarterly contraction in the US economy really was.

Various Nowcast models, based on the latest data flow - including the Atlanta Fed’s GDPNow measure – suggest we should be looking at something of the order of a 35% annualised decline, with the consensus forecast according to Bloomberg currently at -34%. We are a little more cautious, forecasting -36.5%, but in the grand scheme of things that makes little difference. Markets are instead forecasting on where we are heading and the data suggests the US has experienced a vigorous bounceback since May, led by the consumer.

This recovery story is at risk though given the rising number of Covid-19 cases and states reacting to it by reintroducing containment measures that are closing businesses that had reopened. Jobless claims are on the rise and consumer confidence is weakening – watch out for these releases next week – while an announcement on another fiscal package will be key. With 32 million Americans on unemployment benefits currently receiving a $600/week boost that is scheduled to end on Saturday, there could be tougher times ahead.

In this regards, the Fed policy meeting should be something of a non-event. Their raft of liquidity injections, interest rate cuts, asset purchases and credit easing initiatives have certainly eased market tensions over recent months. Nonetheless, the economic outlook remains uncertain so they are likely to retain a cautious tone and stand willing to do more in the future if required. They may well also signal a change in their forward guidance is coming with a tolerance of overshooting the 2% inflation target - a potential key shift in their strategy from September.