Key Events in Developed Markets and EMEA Next Week: Fed Tightening, UK Inflation, and Turkish Central Bank Hike

Key events in developed markets and EMEA next week

In the US, upcoming data is likely to hint at a softening growth story though this is unlikely to deter the Federal Reserve from tightening policy again this month. UK inflation data will determine the size of the August rate hike. And the Central Bank of Turkey is expected to hike by 5ppt to 20%.

 

US: Fed still believes it needs to do more policy tightening

The recent softer private sector jobs growth and lower-than-expected inflation data have seen expectations for the terminal Fed funds rate move lower in recent days. Nonetheless, the Fed still believes it needs to do more policy tightening to ensure inflation returns to 2% and stays there. We fully expect a further 25bp rate hike from the Federal Reserve on 26 July but doubt that policymakers will carry through with the second hike that they envisioned in their recent forecasting round.

The upcoming data is likely to hint at a softening growth story with industrial activity set to remain subdued. The ISM manufacturing survey has been indicating contraction (sub-50 readings) for eight consecutive months while lower energy prices have resulted in a fall in oil and gas drilling rigs operating in the US from 755 at the start of May to 680 as of last week. Retail sales will be lifted by rebounding auto sales numbers and higher gasoline station sales, but outside of these components, we expect sales to struggle. The weekly Johnson Redbook same-store sales numbers have turned negative year-on-year while Opentable restaurant dining numbers are also down YoY. Consumer credit has also started slowing in recent months, pointing to weak growth in spending. Adding to the fears for a recession will be a fifteenth consecutive drop in the Conference Board’s leading index for the US.

Housing data is likely to correct after a very strong set of readings in May, most notably for housing starts. The lack of existing homes available for sale and high mortgage rates are depressing the number of transactions, but construction is improving given stable pricing and a pick up in new home sales due to the lack of properties on the market.