of the week ahead

Central Banks and UK Outlook

Last week, the focus was on the UK following the Bank of England meeting, marking a significant milestone in the country's monetary policy evolution. With inflation projections below target and the unemployment rate ticking up, all eyes are on the upcoming CPI print for April. The debate over the timing of the Bank of England's rate cut cycle intensifies amidst political movements by Labour and Keir Starmer.

Global Landscape and Economic Indicators

Beyond the UK, global politics take the spotlight with upcoming elections in India, South Africa, Mexico, the US, and the UK later this year. Economic indicators to watch next week include the China LPR rate, RBA minutes, and the RBNZ meeting. Additionally, global PMI data will provide insights into the trajectory of economic activity across different regions.

US Market Dynamics

While the US remains a dominant force in global macroeconomic trends, the upcoming week sees a quieter period with a focus on the FOMC minutes. Amidst market sentiment shifts, it might be a time of reflection for US rates with a long weekend in both the UK and the US.


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

Last week, we expressed a clear focus on the UK following the bank of England meeting. How's that evolving. And what are we looking out for in the UK this week?

Neil Staines

Yeah, thanks, Matt. Indeed. We certainly consider the MPC meeting last week to be a clear milestone in the evolution of monetary policy in the UK. Not just the seven two vote, the two dissents in favor of a 25 basis point cut, but also, and most notably, the fact that the inflation projections were significantly below target at the forecast horizon conditioned on market rate pricing, and therefore, giving a very dovish leaning to proceedings. This week, we've had the unemployment rate edge up to 4.3% in the UK albeit as expected. Next week, we get the very important CPI print for April. Now, markets are expecting that CPI print coming at just 2.1%, a long way away from the 11.1% peak we saw in October 2022. Retail sales also next week and consumer confidence, so we do get an understanding of that balance between the inflation and growth trajectory in the UK, all of which we think continues to argue for the Bank of England to begin its rate cutting cycle. Now, as we discussed a little bit further in the blog, the markets are split between the timing of the initiation of that rate cut cycle. 16 basis points or 66% of a 25 basis point cut are already priced for June and more than a 25 basis points are priced by the August meeting, which has the benefits of being an MPR month, which brings with it new projections, which is why the market has centered its attention on that month. But it's not just the economics that are hotting up. Politics, also, Labour and Keir Starmer have outlined their policies for a Labour government with a repost from the Chancellor this week. The starting guns on election campaigning have certainly been fired, even if we don't know the date of the election just yet.

Matt Jones

And what about the global backdrop? What are we looking out for next week from a global perspective?

Neil Staines

Yeah. Quite right. It's not just the UK in terms of politics. Certainly politics is a global theme this year. Indian elections are underway and we should get the final outcome in early June. South Africa has its elections on the 29th of May, Mexico the 2nd of June, and that's obviously not to mention the US in November and the UK at some point this year, presumably around the October time. Now there's plenty to watch for on the other side, on the economic side, also in the global economy, and the big focuses for us next week will be: we get a China LPR rate on Monday now, given the fact that we've recently had a special bond issuance, property measures on the supply and demand side, there have been certainly expectations growing for a rate cut to support the nascent recovery in China. So that's something that'll be watched on Monday. We get the RBA minutes also next week, now Australia are increasingly facing a tricky growth and inflation trade-off. We saw a surprise jump in the unemployment rate also this week. So that's something that may add to the scrutiny of the RBA minutes ahead of their policy trajectory going forward. We get the RBNZ meeting whereby New Zealand are not expected to cut rates, but risks are certainly to the downside. But perhaps the biggest focus of next week is going to be the global PMI data. Do we continue to see a rebound in activity we're going to focus our attention very much on Europe and China and also this kind of divergence or convergence between the rest of the world and the US that we've discussed a number of times in the blog, so a big week for the global data as well.

Matt Jones

I suspect however that the US, as ever, remains a dominant factor in the global macro economic trajectory. How do we see that evolving over next week?

Neil Staines

Absolutely. Yeah. Thanks, Matt. Not just dominant in the macro trajectory, but also dominant in market sentiment and positioning in global asset markets.

Now next week is a slightly quieter week for the US but we do get the FOMC minutes. It's slightly easier scrutiny of which given a more friendly CPI print I suspect that had we had a higher CPI print that would have been significantly greater interrogation of the wider Fed views, in relation to inflation and policy reaction function. As we are, it may be considered slightly old news.

So a slightly quieter week fewer data prints out of the US and a long weekend in the UK and the US followed by half term in the UK. So perhaps it may be a time of reflection in the US and the US rates markets.

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 week.


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