of the week ahead

Transcript

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, Neil. Good to have you back again.

Neil Staines

Hi Matt, good to be back.

Matt Jones

So I think as we as we're looking to the week ahead, I think the stories this week really are starting quite close to home, perhaps with the Bank of England then moving further afield. So as you're looking into the week ahead, what in particular are you going to be focusing on?

Neil Staines

Yeah, thanks, Matt. After another fascinating week in financial markets, where we've had the Fed, we've had U.S. and European Q2 GDP, some exceptional earnings figures, quite, very impressive numbers, not just from the US, but around the globe. And some notable volatility in China asset markets and some uncertainties over regulation. Now we're more of the view that China regulatory pivot is in line with its long run objectives of deleveraging and adjusting compositional growth and even consistency with that recent three child policy, rather than something more sinister and aimed at equity markets or even foreign investors.

Now, we've also had the updated IMF World Economic Outlook forecasts. With global growth unchanged this year, despite some notable compositional shifts and very much in line with our long held views on differentiation. But a big focus this week. Firstly, the central banks are back in town. The Bank of England is back in focus. And while there's no real prospect of a move in rates, there will be a clear focus in two areas.

Firstly, on what the vote split is going to be for continued pace of QE purchases. We expect this to be maintained. But with Saunders and Ramson likely to dissent and recent rhetoric from Vlieger and Cunliffe suggests they may not be far behind, it could go very close to the wire, could even be a Governors call. On inflation forecasts, key to the QE vote, but also for policy guidance going forward. There are clearly some still acute supply and demand mismatches in the global economy that are pressuring prices to the topside. We remain firmly in the transient camp. But pressures on central bankers are likely to rise in the near term.

We also hear from the RBA likely to continue to lean against the rate hike pricing out to the three year yield curve control target. But with Morrison's suggestion just recently that the economy won't reopen until the population is 80 percent vaccinated could be quite a long wait.

Secondly, the big focus of the week is the US employment report. Last week's FOMC explicitly linked progress towards monetary normalization. In the first instance, tapering of asset purchases to attaining substantial further progress towards its policy goals. Now, with inflation already somewhat above target employment gains are now the core driver of US rate pricing and likely the dollar. Now markets are looking for around a million jobs gained in July, with the unemployment rate dipping to five point six percent. A couple of reports like that and the September FOMC rhetoric may be very different indeed.

And lastly, that broader data is going to continue to be in focus, you know, the PMI data will be watched very closely from around the globe next week, both in terms of global recovery and also in terms of differentials. The China official PMI will also be a key driver after a volatile week for China assets and sentiment. And also in the U.S., where last week's Q2 GDP saw disappointment. We retain our long held view of US outperformance, at least relative to DM. And ultimately we see the Q2 miss as a function of supply chain bottlenecks. You know, consumption certainly surprise to the top side. You could say that the US is more wheel spinning and not running out of gas. I mean, to take that analogy a little further, you could refer to the US as Lewis Hamilton, the established champion, whereas China, after a bumpy ride last time out, maybe more akin to Max Verstappen, an exciting prospect for the future.

Matt Jones

Indeed. A great analogy there, Neil, and also brings us nicely to perhaps some interests away from markets. So on the weekend, we've got, again, an embarrassment of riches or things to be looking at. What's caught your eye?

Neil Staines

Absolutely. I mean, we'll start more obviously with the Hungarian Grand Prix. I think tension between Verstappen and Hamilton may be quite close this this this time out. But I do think it's set itself up for a very, very impressive race. We also have the Olympics. You know, we move to the athletics through what is the core point of any Olympic Games. And if we can actually see that both men's and women's 100 meter final, I'll certainly be cheering on Dinah in the Women's on Saturday. And finally, the second test of the British and Irish Lions against South Africa promises to be another crunching game like it was last week.

Matt Jones

Absolutely lots to be looking forward to over the weekend and also for the week to come in the markets. Thank you very much again for joining us. And we look forward to catching up with you again next week.

Matt Jones

Some very exciting sport to be watching over the weekend. Well, thank you once again for outlining your thoughts on on the week ahead and I look forward to catching up with you next week.

Neil Staines

Likewise. A pleasure. Thank you.

Matt Jones

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".

Disclosure

None of the contents of this document should be understood as constituting research on investment matters, or as a recommendations, advice or suggestions, implicit or explicit, with respect to an investment strategy involving the financial instruments discussed, or the issuers of the financial instruments, nor as a solicitation or offer, nor as consulting on investment matters, of a legal, fiscal, or other nature. All the companies of the Intesa Sanpaolo Group, its administrators, representatives, or employees, decline any responsibility (fault-based or otherwise) deriving from indirect damages potentially caused by the use of this communication or its contents, or in any case deriving in relation to this document, nor may they be consequently held liable for any of the above. The information provided and the opinions contained in this document are based on sources considered reliable and in good faith. However no declaration or guarantee is offered by Eurizon SLJ Capital Limited, explicitly or implicitly, on the accuracy, exhaustiveness and correctness of the information, and there is no guarantee that results, or any other future events, will be compatible with the opinions, forecasts, or estimates contained herein.

Views accurate as at the time of publication. Opinions expressed by the authors are their own and do not necessarily reflect those of Eurizon SLJ Capital Limited, Eurizon Capital SGR or the Intesa Sanpaolo Group.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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