Key events in developed markets next week

The calming of bank stresses and the combination of reasonable activity numbers but persistently high core inflation has allowed the Fed to stick with the message that another 25bp interest rate hike is the most likely outcome for the 3 May FOMC meeting. The upcoming data won’t change that view.

First quarter GDP is the highlight of the data releases and we look for a slightly sub-consensus 1.5% annualised growth rate. Consumer spending will be strong given the blowout retail sales report for January which was boosted by unseasonably warm weather after a cold and wintry December. However, weaker net trade and inventory performance will go some way to offsetting that story. We will also be closely watching the Fed’s favoured measure of inflation, the core personal consumer expenditure deflator. It is expected to rise 0.3% MoM and 4.5% YoY, which won’t dissuade the Fed from hiking rates. We will also see a fair amount of housing data and consumer confidence numbers, but these are likely to remain subdued.

We are expecting a 50bp hike by the Riksbank next week, and we think the updated rate projections could go beyond what markets are pricing and signal a peak rate of roughly 4%, up from just below 3.5% last time. Core inflation is still well above the Riksbank’s February forecast, though activity data is looking bleak. Given the Riksbank meets only five times a year, it has to make each meeting count. Policymakers have emphasised in the past that staying out in front of the European Central Bank is a priority.

In practice though, taking rates much higher could prove challenging given the economic and housing backdrop, and we’d argue that even another 25bp hike in June is not guaranteed (though it’s our base case for now).

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