In this episode:
- UK: Fiscal Tightening Delayed, Monetary Cuts Deferred
- Global: Complex Growth Dynamics Across Regions
- US: Weakening Labour Market, Disinflation, and Fed Cuts
UK: Fiscal Tightening Delayed, Monetary Cuts Deferred
- A full suite of UK data lands next week: jobs, CPI, retail sales, and the Bank of England meeting.
- The budget delay means fiscal tightening won’t appear in BoE projections until February.
- December rate cuts remain possible, but a faster cutting cycle is now more likely in early 2026.
Global: Complex Growth Dynamics Across Regions
- US CPI showed retailers’ weaker ability to pass on tariff costs, hinting at softer demand.
- China data (retail sales, industrial output, investment, jobs) will shape views on the recent equity rally.
- ECB signalled it is done cutting, while Japan, France, and the UK fiscal signals add to global uncertainty.
US: Weakening Labour Market, Disinflation, and Fed Cuts
- Jobs data undershot, with a sharp downward revision to payrolls and rising jobless claims.
- PPI data highlighted weakening demand, reinforcing the disinflationary backdrop.
- The Fed is expected to cut 25bps, but focus shifts to projections, the dot plot, and Powell’s guidance.
Transcript (AI Generated)
Matt Jones
Welcome to "The Long & Short of the Week Ahead", a production of Eurizon SLJ Capital that takes a look at the macro-economic themes of the week ahead and has been recorded for professional investors.
My name is Matt, Head of Distribution for Eurizon SLJ Capital, and I'm joined by Neil Staines, Senior Portfolio Manager.
Welcome back, Neil. It's great to have you here with us again.
Neil Staines
Thank you very much Matt. It's great to be here.
Matt Jones
Now, steering clear of politics in the UK at the moment, next week looks set to be a huge week for UK data and monetary policy. So how are we thinking about Sterling and UK rates next week and beyond?
Neil Staines
Yeah, that's a very good question. Thank you, Matthew. The UK economic and fiscal trajectories are likely of huge significance to the monetary policy reaction function at the current juncture. And next week we get a full suite of UK data: the employment report on Tuesday, CPI on Wednesday, and retail sales on Friday. And of course, the Bank of England on Thursday. With nothing priced by the market, and no press conference or updated projections, the Bank of England meeting is likely a non-event next week. However, the high-frequency macro data is likely to further highlight the slowing UK economy. Ultimately, with a further fiscal tightening orbit guaranteed at the delayed UK budget, the release valve must ultimately come via lower rates from the Bank of England.
We have discussed on many occasions the fact that the Bank of England only incorporates announced measures into their projections. Thus, the delayed budget means the fiscal tightening and the likely significantly lower growth projections will not be incorporated until February, as they will now come after the November Monetary Policy Report date.
We still see a December cut as likely if the data deteriorates as we expect. But accelerated cuts are now more likely in early 2026, noting that the impact of the budget delay itself is also consequential from our perspective. The shallower path of near-term rate cuts than would otherwise have been the case will likely keep rates and Sterling better supported for now, but it is only for now.
Matt Jones
And how about the rest of the world? How are we thinking about the global growth dynamic at the moment, and what are we watching for next week that might shape those thoughts?
Neil Staines
Yeah, great question, Matthew. You know, the global growth backdrop is very complex at the moment. Indeed, the US CPI data this week, as we discussed further in this week's blog, highlighted a reduced ability of wholesalers and retailers to pass on tariff price hikes—likely an indication of weaker demand in the US. The implications on the global economy, however, are not clear, but global export caution is likely warranted. In that regard, we get the China suite of data to start next week: retail sales, industrial production, fixed investment, and the unemployment rate all for August.
The China growth trajectory is very important, especially in relation to its recent equity market rally.
In Europe, post this week's ECB meeting, where despite the downward revisions to 2026 growth and core inflation at the forecast horizon to just 1.8%, the underlying message was that the ECB are done cutting rates in this cycle; that the disinflationary process is over, as Madam Lagarde referenced in the press conference.
We also get Aussie employment for August, Japanese CPI, and the Bank of Japan meeting on Friday, alongside the positioning ahead of the Japanese leadership elections, the movement towards a new budget proposal for the new Prime Minister in France, and any hints as to the avenues for UK fiscal tightening. The developed market macro backdrop remains very complex, and in some respects, the narrow EM-DM risk premium is entirely justified.
Matt Jones
And finally, we get the Fed. So how have the employment and inflation data altered expectations, and how are we thinking about US monetary policy going into the year-end?
Neil Staines
Yeah, another great question, Matt. You know, the US data has been a huge focus over recent weeks. We touch on this topic in this week's blog, but essentially we've had further confirmation that the labor market is slowing.
We had a 22,000 rise in employment at the August jobs report, well below expectations, and following some sharp downward revisions the previous month: a 911,000 downward revision to the payroll gains for the year ended April 2025, halving the initial estimates. And we had a jump in the weekly claims this week.
And from the PPI print, the services component suggests that there is also a weakening of consumer demand. Now, Fed policy this week will be a huge focus, less so on the fully priced 25 basis point cut, but more on activity in the updated economic projections: growth and the unemployment rate in particular, but also the dots.
Any changes from the two-cut median at the June meeting, and of course, the framing of the narrative from Fed Chair Powell at the press conference, will also be crucial to rate pricing going forward. We continue to see a broadly disinflationary backdrop and a relatively expedited path towards 3% rates in the US.
Three consecutive cuts this year seem sensible at the current juncture. We also get retail sales and of course the weekly claims data, in higher focus after this week's upside surprise. Either way, the Fed and the US will be a huge focus for next week.
Matt Jones
Fantastic. Thank you for joining us once again and outlining your thoughts on the week ahead. I look forward to catching up with you again next time.
Disclosure
This communication is issued by Eurizon SLJ Capital Limited (“ESLJ”), a private limited company registered in England (company number: 09775525) having its registered office at 90 Queen Street, London EC4N 1SA, United Kingdom. ESLJ is authorised and regulated by the Financial Conduct Authority (FRN: 736926). This communication is treated as a marketing communication intended for professional investors only and is provided only for information purposes. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, with respect to any investment strategy or financial instruments, or the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this communication, save to the extent agreed in any written contract entered into between ESLJ and the recipient, and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication. Views are accurate as at the time of publication. Opinions expressed by individuals are their own and do not necessarily reflect those of ESLJ or any of its affiliates. The value of any investment may change and an investor may not get back the original amount invested. Past performance is not an indicator of future performance. This communication may not be reproduced, redistributed or copied in whole or in part for any purpose. It may not be distributed in any jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions.
ESLJ-120925-P2
Subscribe to our insights
If you are interested in our content, please sign up below and we will deliver Eurizon SLJ insights right to your inbox.
I consent to my data being collected and stored for the purposes of providing me information regarding my enquiry and related services. If you have any questions about your data please contact us at research@eurizonslj.com
Our Research
Our written research products aim to provide unique and orthogonal insights on key global economic and policy issues in a timely fashion.
