Key things to watch in Developed Markets next week

It's a really busy week for US data and events. First up this Friday is 4Q GDP, which is likely to show the third consecutive 3%+ reading – the first time this has happened for 13 years. Domestic demand is strong and the competitiveness boost from dollar weakness puts the US in an excellent position to benefit from the global upturn. President Trump will no doubt make everyone aware of this great success story in his speech at the World Economic Forum in Davos, where he will presumably be pushing his America First strategy. This is likely to create nervousness in Canada and Mexico just as the sixth round of NAFTA negotiations get underway in Montreal on January 28. Trump will also be giving his State of the Union Address on Tuesday evening.

As we head into next week the Fed meeting will be in focus. It is the last one Janet Yellen is presiding over as Chair of the Federal Reserve, but no-one is expecting any policy change given the Fed only hiked rates in December. Also with Jay Powell taking over at the Fed in February, there will be a rather anodyne press release to give him as much flexibility as possible.

Attention will then switch to the January jobs report. Payrolls growth should be solid, although it has the potential to be buffeted around by the cold snap earlier in January. But wage growth, which is arguably more important for Fed policy these days, could be a bit of a let-down for markets. As is often the case, the data will fall foul of a quirk relating to the number of workdays in the month, which could easily result in an artificially low rate of wage growth. This is ultimately just noise, and through the rest of 2018 firms are likely to continue to offer more generous pay packets in a bid to hire and retain staff. This is another reason why we expect the Fed to follow through with three hikes this year.

The first estimate for January inflation in Germany will shed some light on how strong the impact from higher oil prices will be on Eurozone inflation in general. Also, coalition talks in Berlin will continue. In the Eurozone, next week’s data could worsen the ECB’s current dilemma of strong growth with very little inflation.