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 as we look into next week, I think there's going to be a key focus really on global growth, but also from a regional perspective, perhaps an interesting week for the UK. And of course, let's not forget the Fed Minutes coming up next week as well. So perhaps you can just guide us through how you are thinking about the next week.

Neil Staines

Absolutely. Yeah. Thanks Matt. To put it into perspective it is going to be another complex week for financial markets with markets divided between the US soft and hard landing camps, against a backdrop of uncertainty with debt ceiling negotiations, threatening to go right to the wire. In this environment, markets are more acutely sensitive to data and policymaker comment. And there are a few things in particular we'll be looking out for next week.

Firstly, we get the global flash PMI data for May. Now the May data will be watched very closely, especially in the manufacturing sector and in Europe after some signs in the April data that the stability of Q1 is starting to falter. This focus on the global growth narrative will likely be further emphasized by new projections from the OECD and their economic outlook. Of particular focus will be the updated forecast for China as recent data suggests a modest slowing of economic momentum, underwhelming market expectations of the reopening growth rebound. We discussed the global growth, inflation and policy outlook further in this week's blog. And give our macro thoughts on the implications for bonds, equities, and for the dollar.

Secondly, next week will be an important week for the U K as you said, Matthew having implied a desire to pause rates at current levels contingent on the absence of further inflation resistance, the Bank of England will be hopeful of a significant inflation drop next week. Market expectation is for a 4 to 8.1% year on year in for April, and that's down from 10.1% in March. A drop that if validated, will question the interest rate curves that currently price almost too further 25 basis point rate hikes from the Bank of England. Now on Friday, we also get an update on the consumer with retail sales data for April. We've made our views very clear for a while now that the Bank of England have likely tightened further than warranted and as a function of inflation risks, putting ourselves in the Tenreyro and Dhingra camp on rates. Next week will be very important for expectations, forward path of Bank of England policy rates, and we'll be paying very close attention.

Lastly, we get the FOMC minutes from the May, the second and third meeting of this month. Now as we suggested earlier, markets are divided in the US about the growth trajectory a projection that is made more complex by the monetary policy lags by the small bank credit shock, and of course by the uncertainty around the current debt ceiling debate. At the main meeting, Powell implied that the Fed will pause policy in June. Thus the minutes will be very keenly watched for clues about the divergence of views on the committee, on inflation, on growth, on the impact of the small bank credit shock on aggregate demand and ultimately on the collective propensity to tighten policy further. Our view remains clear that the inflation's decline through the rest of 2023 will quickly push real rates beyond sufficiently restrictive, and thus a policy easing bias likely emerges. The Fed Minutes and the new employment and inflation data at the start of June will shape expectations for the Fed's response at the June FOMC.

Matt Jones

Thank you Neil. An important week and lots for us to be keeping an eye on. In the meantime, we have the weekend. Dare I ask, what do you have your eye on?

Neil Staines

Oh, absolutely. There's a few things out there. After the spectacular win in Europe for West Ham United, on Thursday we get the penultimate fixture round of this year's premiership with huge games at the top, Liverpool versus Aston Villa, Man City versus Chelsea. And at the bottom with Leads, Leicester, Forrest and Everton all with difficult opponents. The Formula One is canceled this week due to the flooding in Emilia but the sunshine should be out in the UK and should be very helpful for a full county cricket schedule this weekend. As mine's focus on the fast approaching Ashes series less than a month away, now all of this against a relaxing backdrop of the US PGA Championships from Oak Hill in New York will keep me very entertained.

Matt Jones

That certainly sounds like a good weekend and hopefully with the UK weather we might even have a chance of a second barbecue of the season. Thank you for joining us once again and for outlining your thoughts on the week ahead as ever 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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