Article8 February 2018Reading time 4 minutes

Key events in developed markets next week

ING, Bloomberg
ING, Bloomberg

US: Our Fed base forecast subject to upside risk

Calm has returned to financial markets after the recent roller coaster ride and attention will return to the economic data. The US story this coming week may actually be quite supportive for risk assets with inflation readings likely to be somewhat soft while the growth backdrop remains very good.

Calm has returned to financial markets after the recent roller coaster ride and attention will return to the economic data

However, the lower inflation readings (headline and core CPI annual rates to dip 0.2 percentage points and 0.1ppt, respectively) is only due to the fact that we don’t expect to see last year’s jump in airfares and recreation prices to be repeated in the January 2018 data. The dollar’s weakness, which is pushing up import costs, and rising corporate pricing power mean we expect headline inflation to be back above 2% in February. The legacy of cell phone data plan charges means that core should also be above 2% in the March report.

Activity-wise retail sales will be supported by rising wages and employment and very high consumer confidence readings. Industrial production should also be good given the very high readings within manufacturing surveys (most notably the ISM report) while the NFIB business survey should be very good based on the extremely strong labour sub-indices already reported. Taking this altogether our base forecast of three Fed rate hikes this year is subject to upside risk.

Eurozone: Industrial production takes centre stage

In terms of Eurozone data, next week will focus on December industrial production. We expect the recovery of production to have continued at the end of the year as businesses continue to indicate improving output. The second estimate of Eurozone GDP growth should not bring large surprises, but it will be worth watching some of the individual country releases as Germany and Italy are providing first estimates.

UK: Bank of England to hike rates in May?

We are expecting UK core inflation to nudge back up to 2.6% next week, although a lot depends on the change in airfares following December’s Christmas surge. Importantly, we are looking for core CPI to trend back towards the 2% target relatively quickly over coming months now that prices have pretty much adjusted to the post-Brexit plunge in the pound. For the Bank of England though, the outlook for wage growth matters more and assuming the recent positive trend continues over the next few months, we think policymakers will have enough conviction to hike rates in May – although as always, a lot still hinges on Brexit.

Germany: Expect more positivity

After the political excitement of the last few days, next week’s headlines will be dominated by macro data. The first estimate of 4Q GDP growth should bring more positive news from Germany, with another strong quarter.

Sweden: Riksbank 'wait-and-see'

In Sweden, the Riksbank meeting on Wednesday is unlikely to deliver any major news and is expected to keep interest rates unchanged. The central bank is likely to remain in a wait-and-see mode until the ECB makes its next move this summer.