ING Economic and Financial Analysis | Dec 07, 2018 08:15AM ET
Another week in developed markets that will be dominated by Brexit as PM May's deal is voted on in parliament on Tuesday. The ECB meets next Thursday too - a historical meeting at that, given we'll be seeing quantitative easing coming to the end of its era.h3 US: The rough and the smooth/h3
It's likely to be a little mixed in terms of the US data flow with recent oil price fluctuations exerting a significant influence. The $25/bbl plunge in oil since the start of October has seen gasoline prices drop from $2.90 to $2.45 per gallon. As such, this will be a significant drag on headline inflation with transportation costs also likely to edge a little lower. However, the US economy continues to run hot with wage pressures intensifying. With tariffs also on the rise, core inflation is likely to keep grinding higher with the annual rate set to tick up to 2.2% year on year.
Energy will also impact the value of retail sales with gasoline station sales obviously heavily impacted. However, consumer confidence is good, and incomes are rising so outside of this component we expect sales to remain robust. Industrial production should rebound following last month’s slightly disappointing outcome. Rig counts continue to rise suggesting rising mining, oil and gas extraction while utilities output should also rise after two consecutive monthly falls. Manufacturing remains good despite fears over tariffs and protectionism with improvements in the ISM series pointing to another positive outcome.
Given the backdrop of decent activity, rising wages and solid core inflation this should reinforce expectations for a December interest rate rise from the Federal Reserve.
h3 Eurozone: The end of the QE era/h3Doubts about growth are popping up everywhere, not in the least in the Eurozone. The question is if growth recovered in the fourth quarter and industrial figures for October will be an important gauge for the current state of the Eurozone economy.
The ECB meeting next week will not only be the last meeting of the year but will also be a historic meeting. It should mark an important step in returning monetary policy to normality. Only, hardly anyone seems to be interested. Thanks to changes in the communication back in June, market participants and ECB watchers have been well prepared for the gradual end of the ECB’s net asset purchases. Anything else than the announcement to bring these purchases down to zero by year-end at Thursday’s meeting would be a great surprise.
h3 Buckle up, it’s going to be a bumpy week in the UK/h3After all the build-up, Prime Minister May’s Brexit deal will be voted upon in Parliament on Tuesday, and all the signs suggest it will be rejected by MPs. That opens the door to a volatile period in the days that follow, and we think there will be three things to watch:
If Theresa May survives as both Conservative Leader and Prime Minister, then the next step would be for the government to instruct Parliament within 21 days about its next steps. MPs will now be able to amend this plan with their own proposals on the way forward – which begs the question of whether lawmakers will push for a second referendum or a move closer to the ‘Norway Plus’ model.
h3 Norges Bank meeting and November inflation figures/h3Next week’s key event in the Nordic region is the Norges Bank policy meeting on Thursday. After a 25bps hike in September, there is little chance the central bank will raise rates again so soon, in particular after the recent sharp fall in oil prices. That development poses a substantial risk to the NB’s relatively hawkish stance. While we expect they are likely to signal that the next hike is still set for March next year, the outlook further out is looking less certain.
Also, both Norway and Sweden report November inflation figures next week, but here the oil price drop since October looks set to drive headline inflation rates lower. Core inflation – the key driver for central bank policy in both countries – is set to remain broadly stable. If we are right, Swedish core inflation will remain at 1.5%, that would be (yet again) a downside for the Riksbank’s inflation forecast, and could push the Swedish central bank towards delaying its planned interest rate hike to February.
Finally, Sweden’s political deadlock could finally start moving towards a resolution. Social Democratic leader Lofven’s attempts to form a government is likely to be put to a vote in Parliament, and separately a budget for 2019 will also have to be passed. While a budget of some kind is likely to be passed, the government formation process remains up in the air as the Social Democrats negotiate for support from the Centre and Liberal parties. If they cannot find a compromise, new elections in the early part of 2019 look likely.
h3 Developed Markets Economic Calendar/h3Content Disclaimer: The information in the publication is not an investment recommendation and it is not an investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
This publication has been prepared by ING solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. “For more from ING Think go here .”
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