of the week ahead


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 Jones, 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

So, in the UK we have our third and final bank holiday of the month of May, which has been rather indulgent, but it does mean a shorter week also in the US. But I suspect it doesn't really change the focus or quite how busy the next week's going to be. So perhaps you can just guide us through your thoughts on the week ahead.

Neil Staines

Yeah, absolutely. Thanks Matt. It's been another complex week for financial markets with central banks and government dominating sentiment. Now after the RBNZ hiked 25 basis points and cut their projections indicating a rate pause. Through this year and most of next, a higher than expected CPI print in the UK drove concerns of a renewed series of rate hikes for the Bank of England and aggressively hawkish repricing from the market. We would take a more cautious view of the Bank of England activism at this stage. But it is clear the UK has the worst growth inflation trade-off in developed markets at the current juncture. The CPI print the day before the June 22nd MPC rate decision and likely a clarification of their definition of inflation persistence will be critical going forward. Finally, this week's focus and market sentiment has revolved around the US debt,ceiling deliberations, and the risk premia priced into short end rates and the dollar. Next week all of these factors will remain part of market sentiment, but we have a few things we are keeping an eye on.

Firstly, it is, as you mentioned, Matt a slow start to the week with the UK and the US on holiday. However, with the debt limit fast approaching and with it, the technical solvency of the US the weekend, or if we are lucky late this Friday will be key for the partisan negotiations. Positive headlines might signal a more relaxed weekend but failure to agree the details likely leads to a very nervous start to next week. The official X date is not clear, but Treasury Secretary Janet Yellen has been clear that it could be as soon as June 1st, that's this coming Thursday. Taking the debate or negotiations to the wire may be optimal from a partisan political perspective, but for market sentiment, it is quite the opposite.

Secondly, we get the ECB minutes next week. While the narrative around the Bank of England is incredibly complex and the views on the FOMC still relatively broad, the governing council of the ECB remain more unanimous in the view that more tightening is required. As we pass the 25th anniversary of the ECBs formation this week. The focus of markets will be around any acknowledgement of slowing growth or areas of economic concern. A topic brought into focus this week with the downward revision and thus recession signal from German Q1 GDP. However, while retrospectively driven wage bargaining, keeps wage pressures and by extension core inflation, high hikes will continue in the Euro Zone for now, likely through this summer.

And then lastly, it's that time again. Next week after an important JOLTS and manufacturing ISM releases we get the non-farm payroll reading on Friday. Now, last week we discussed what we described as a watershed moment for US monetary policy. As the Fed or Chair Powell indicated a likely pause and made a move towards a more data dependent focus. For future monetary policy iterations. Now due to the idiosyncrasies of the current cycle and following on from pandemic demand and supply shocks the central focus of market remains inflation. And at this stage of the cycle, increasingly wage inflation and growth and its implications for employment. That likely leaves CPI and non-farm payroll as the critical data in the Fed's data focus. Hence, we expect a huge focus on payrolls next Friday.

Matt Jones

Thank you, Neil. A short yet very interesting week ahead for us. In the meantime as I mentioned earlier on, of course, it's a bank holiday weekend in the UK. So aside from, fingers crossed for some nice weather and a potential barbecue, we have quite a packed scheduled, don't we? So what have you got your eye on?

Neil Staines

We do. Yeah. Thanks Matt. There's certainly a lot in the world of sport to fill the three day weekend. It's the finale of this year's Premiership football season with the focus of Sunday's games being on the relegation battle with two of Leeds, Leicester and Everton being confined to the championship next season. Just FA Cup Final, Champions League final and the hugely important Europa Conference League final to come .Ahead of that this weekend is the flagship Grand Prix of the season in Monte Carlo through Casino Square, Grand Hotel Hairpin and then roaring out of the tunnel into the Marina around the pool, incredible setting for Formula One's return after a few weeks off. And as the summer threatens to finally arrive we get the start of the French Open Tennis from Roland Garros on Sunday. And no fewer than three world title boxing bouts on Saturday night. Plenty of cricket from the blast and sunshine, ideally topped off with a barbecue, as you say. That's a bank holiday weekend dreams are made of.

Matt Jones

It really is. I hope you find that barbecue and enjoy your weekend and I look forward to catching up with you again next week.

Thank you for joining us for "The Long and Short of the Week Ahead". Further insights are available on our website eurizonsljcapital.com/insights. We look forward to you joining us again next week for more insights into macro-economic events and "The Long and Short of the Week Ahead".


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