Key global events next week

From the US to Europe, one of the key questions over recent months has been whether the weakness in manufacturing and reduced investment appetite will begin to challenge the jobs market. In the case of America, the jobs market has stayed relatively resilient despite these headwinds, which when combined with solid wage growth, has kept consumer confidence elevated.

The final jobs report of 2019 saw bumper employment growth, although this was flattered by the end of the GM strike. We're likely to see a slower pace of job creation in December, and there is a risk that we see a broader slowdown in hiring over the coming months. As ever though, a lot depends on trade, and whether tensions flare up once again ahead of November's Presidential election.

We expect the National Bank of Romania (NBR) to keep the key rate on hold at 2.50% and broad monetary conditions unchanged at the 8 January meeting. Recent inflation numbers have been in line with the latest NBR forecasts. Given the twin deficit constraints, the NBR is likely to keep the key rate unchanged until after the general election due in late 2020, while retaining the flexibility of altering monetary conditions via liquidity management. Monetary easing after the general election is dependent on the size and the timing of fiscal consolidation. We tend to believe it would come gradually.

Next week's MPC meeting should be a fairly non-event. The committee has previously communicated that it will not react to a temporary increase in CPI during the first quarter. We do not expect any shift in rhetoric this time.

In terms of the inflation data, we expect CPI to increase in December from 2.6 to 2.9% year-on-year, mainly on fuel prices. Core inflation should stabilise around 2.6% YoY. Energy Regulator URE announced that three of four major electrical energy companies will increase total costs for households by approximately 12% from January. An announcement from the last company should come soon and be of a similar magnitude. Therefore CPI is likely to increase towards 3.5% YoY in January and exceed the central bank’s target boundary in February (3.7-3.8%). However the increase should be temporary – we expect a return towards the 2.5-3% range in the second half of 2020.