Key Events In Developed Markets Next Week - Friday, January 25

Jam-packed week ahead for developed markets, but with no end in sight for the US government shutdown and a Federal Reserve likely to hit the brakes, our main focus turns towards Eurozone data - particularly growth and inflation, which in our view is going to give the ECB a lot to think about.

US: Taking its time

The US government shutdown continues, and unfortunately, there is no end in sight. For the 800,000 workers not receiving their paycheck, the pain is obvious, but we are now seeing broader implications with private sector enterprise increasingly feeling the strain. Government contractors are not getting paid and will not be compensated, while new business permits and travel visas are not being approved and airport security lines continue to grow in length. This in itself is not enough to significantly hurt the US economy, but when combined with other headwinds such as the lagged effects of higher interest rates, the stronger dollar, and ongoing trade worries, it certainly adds to the economic uncertainty. 

In this environment, the Federal Reserve is widely expected to sit on its hands with a no policy change announcement on 30 January. The fact that the government shutdown has limited the data flow also argues for a pause, until there is more clarity. Indeed, 4Q GDP data, scheduled for Wednesday, won't be released unless the government reopens imminently.

The Federal Reserve only raised rates last month, we continue to expect just two rate rises in 2019 versus the four we saw in 2018. Financial markets are pricing the risk of rate cuts, but we think the strength of the jobs market makes this unlikely. This week’s payrolls report won’t be anywhere near as strong as the December report, but the key themes of companies struggling to fill vacancies with wages being bid higher still holds – note the Bureau for Labour Statistics is fully funded until 30 September so will be publishing economic data. Moreover, if the US-China trade tensions start to soften, this will boost the case of a rate hike in June.

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