Key Events In Developed Markets Next Week - Friday, March 5

The key focus of developed markets will be the ECB meeting next week where we expect rates to remain unchanged, and the same goes for the Bank of Canada. In the US, the inflation discussion will continue to be in the spotlightwhile the UK reports  GDP numbers for January.

Eurozone: ECB meeting in focus, and upbeat industry data expected

Besides the ECB meeting, which is clearly the main event for the eurozone next week, industrial production is out on Friday.

However, it is pretty important given that industry has been key in limiting 4Q GDP losses. With extended lockdowns in the first-quarter and bleak retail sales figures for January, it is equally important this quarter.

Surveys have painted a pretty strong picture for the start of the year in manufacturing with improving order books and increasing optimism among businesses. Friday’s data will show whether that is reflected in January output.

US: Inflation to edge higher, but don’t expect FED changes yet

Once again the focus will be on inflation ahead of the Federal Reserve’s FOMC meeting on 17 March. The Fed remains relaxed about the situation, arguing that there is significant spare capacity in the economy that will continue to dampen price pressures while there continue to be uncertainties over the resilience of the recovery. As such they still feel it could be “some time” before they start slowing the rate of QE asset purchases – currently $120bn per month – and that the first interest rate hike is unlikely to come before 2024, based on their forecasts.

However, with President Biden having announced that the US will have enough vaccines for all American adults by the end of May, paving the way for a second-quarter re-opening, and the US macro data having started on a strong footing, we think the growth prospects are very good and this could see more price pressures emerge.

This week headline inflation is likely to move a little higher primarily due to rising gasoline prices with the annual rate of headline inflation set to head to 1.6% from 1.4% while core (ex-food and energy) stays at 1.4%. Annual rates will start to rise quickly though in March-July as price pressures in a depressed, locked down economy 12 months ago are compared with price levels in a vibrant re-opening economy in 2021. We expect to see headline inflation move above 3.5% in 2Q which could lead to a change in language from the Fed at the June FOMC meeting surrounding the prospects for a tapering of asset purchases. We also think inflation could be stickier due to improved corporate pricing power in a supply-constrained economy.

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