Key events in developed markets next week

The recent US data flow has been offering confusing messages, which may in part reflect data disruption issues relating to the government shutdown. Nonetheless, the Federal Reserve has indicated it can be 'patient', seeing risks from cross currents yet believing the underlying position of the US economy is sound.

This week’s data should be decent with the strong jobs market helping to underpin consumer confidence and spending. Payrolls growth will likely slow from the unexpected 304k surge in January, but there is upside potential for wage growth as the tightness in the jobs market fuels inflation-busting pay awards.

We will also be listening out for more details on a potential US/China trade deal that could lift some of the gloom surrounding the global economy. Given this backdrop, we believe markets are being too pessimistic on the outlook for policy in pricing the next move being a 25 basis point Fed rate cut by summer 2021. Instead, we continue to favour a 25 basis point rate hike later in the year.

We expect the ECB to keep its cards close to its chest next week, and this means no new TLTRO announcements or changes to forward guidance. Instead, we expect the ECB to strike a dovish tone and mention that the Governing Council has asked the relevant committees to look into possible options to tackle liquidity and bank lending problems. This would open the door to some new policy announcements at the April meeting.

The Bank of Canada meeting next Wednesday is likely to be a non-event when it comes to a change in the policy rate. That said, the language that governor Stephen Poloz uses in his press release will be analysed carefully. We hope some light will be shed with regard to the BoC’s tone, and whether there’s an indication that monetary tightening is still deemed the appropriate course of action this year.

Economic fundamentals are looking good though, and Friday’s employment report could reinforce our view that – despite the global risk environment, the labour market is strong. Wage growth for full-time workers finally picked up to 1.8% YoY in January after seven months of consistent declines. On Friday, we’ll be seeing if this upward trend is sustained, as this would further support our case that monetary tightening will resume later this year.