Key events in developed markets next week

May's decision to resign has injected a sense of nervousness into UK markets, given that her successor is likely to be more eurosceptic. May announced on Friday that she plans to step aside on 7 June, triggering a leadership contest which could last two to three months. Ultimately though, a new leader will face the same hurdles as Theresa May – a Parliament that is against ‘no deal’ and a European Union that is not prepared to renegotiate on the contentious Irish backstop. We still think a ‘no deal’ is unlikely, but not impossible – read why here.

Swedish growth had a surprisingly strong end to 2018, but this positive run is unlikely to extend to next week’s first-quarter data. While house prices have been more stable recently, the impact of the earlier declines is still taking its toll on real estate construction – a key component of investment. Consumer spending has also been hit although retail sales weathered the storm relatively well in the first quarter. The prospect of fairly modest real wage growth and a more sluggish jobs market suggests that consumption will remain fairly lacklustre over coming quarters. The Riksbank expects to increase rates towards the end of this year or early next, but with weak growth and benign inflationary pressures, it’s hard to see them following through with this – particularly when other global central banks are moving the other way.

Canada’s first-quarter GDP report won’t be particularly exciting – though a touch more upbeat than what we saw in the final quarter of last year.

There will likely be a few concerns in and around the report, for example: 1) The trade deficit is the widest since the second quarter of 2016, 2) the manufacturing PMI broke below the key 50-threshold in April, falling into contraction territory and 3) construction starts were down 9.9% in 1Q19, which suggests that we aren’t yet out of the housing market slump. However, we presume most of this weakness is a result of negative sentiment from a soft growth patch which emerged quite quickly between 3Q18 and 4Q18. In large part, this was due to the late-2018 oil price decline and the lingering uncertainty surrounding oil pipeline approvals.

Nevertheless, domestically, we see a strong labour market and better news on the way for the housing market - likely in the post-2Q19 period. And globally, recent optimism that a new Nafta agreement could be ratified by the end of summer along with our trade team’s view that a US-China trade deal could be struck by the third quarter suggests the first quarter will be a low point for 2019. In turn, this should keep the Bank of Canada on hold at 1.75%, despite other dollar-bloc central banks talking of (or actively) cutting rates.