US: jobs report and Fed speakers
The US jobs report will set the tone for the week ahead with the risk it could be interpreted as being quite soft. We look for payrolls growth of around 170,000, but the main disappointment may be wages. Due to working day effects (there were two more working days in January versus December) this will artificially depress average hourly earnings given most people are paid a salary. However, this is purely a technical story and given the tightness in the jobs market we still believe wage growth will rise.
We will also have several Federal Reserve officials speaking this week as we look to the next Fed meeting in March to see if the market is being too aggressive in pricing in a 90% probability of a 25bp rate rise.
UK: an eye on the Bank of England
Bank of England policy rate
In the UK the Bank of England will be the focus. Recent comments from officials suggest they have been positively surprised by the recent data flow, but it is unlikely to be enough to tempt the BoE to hike this time. We think May is a more likely date, but we are not convinced it would happen. However, should the BoE nudge up its growth forecast next week and if the British government makes progress on achieving a transitional deal on Brexit with the EU then it would become more difficult to argue against it.
Germany: look out for politics
In Germany the entire batch of industrial data will probably once again be blurred by the Christmas break. Weaker industrial production, however, will do little to spoil the growth party in the fourth quarter. Even more important, the coalition talks in Berlin should be finalized in the weekend of 3/4 February. We expect a final agreement but the big hurdle will then be the vote of more than 440,000 SPD party members on this final outcome. It will take until the end of February before we finally know whether there will be a new government or whether the country is heading towards new elections.
Norway: GDP, CPI and a potential December hike
Norwegian 4Q GDP and January inflation figures are both out on Friday. We expect solid figures that will support Norge’s Bank’s shift towards a December hike.