Key things to watch in Developed Markets over the next week

After posting very solid GDP readings in 2Q and 3Q17 we are expecting to see a third consecutive 3%+ GDP growth figure in next Friday’s 4Q report. Consumer spending is strong and investment is looking very robust while exports are being supported by a competitive exchange rate and rapidly improving global demand. We expect this momentum to continue through 2018 with President Trump’s tax cuts already yielding positive results in terms of investment, jobs and wages as highlighted by recent news flow from the likes of Apple, Fiat Chrysler and Walmart. December durable goods order should also be strong, underpinned by a big jump in Boeing aircraft orders.

Confidence is also likely to hold at very high levels, but there is perhaps some downside risk for existing home sales given an unwinding of hurricane related distortions that have heavily influenced the data flow since August. Despite all this we expect the Fed to leave rates unchanged on January 31st in what will be Janet Yellen’s final FOMC meeting as Fed Chair.

In the Eurozone, for next week’s meeting, we expect Draghi to convey a rather dovish message, pointing to still weak inflationary pressure and also emphasizing the disinflationary impact from a stronger euro. The most important message to watch will be whether Draghi confirms the October statement that there will be no sudden end to QE. We expect him to do so as this would be the only way to – at least – temporarily get the genie back in the bottle. It would also show Draghi’s magic of how to guide financial markets with very few words and without any action.