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.
Thank you very much Matt. It's great to be here.
So looking into the week ahead, I fear next week could be a bit of a P.I.G., but only as much as we're focused on Policies, Inflation and Growth. Perhaps you could outline your thoughts.
Absolutely, yeah, thanks, Matt. You know, as we come to the end of the month, and the end of Q2 and H1, there are still some very interesting and complicated dynamics in the global macroeconomic and global market world. Indeed, in June itself, we've seen some sharp moves driven by inflation, the US CPI print, perhaps most notably in the Fed pivot, and reacceleration of hawkishness from the Fed. On the growth front, you know, a shift in market pricing and the probability of recession, that's something that has been front and center; and the monetary policy front across DM and em, right from one end from surprise action to the other end of surprise inaction. Now next week, we have events and data that focus on all three of these areas for global financial markets.
Firstly, in the US, the emphasis remains on inflation and perhaps more significantly, recently, after regaining, or for now at least, control of the inflation narrative from a financial market perspective, the policy focuses on inflation expectations, and second round effects there in. Sentiment in this regard is key to the Fed path and next Friday's PCE release from May will be key to that. This will be a key focus for markets in gauging the Fed reaction function and the recent stability that we've seen in treasuries, and potentially a more stable backdrop for risk assets, as the Fed targets a relatively narrow landing strip for a soft landing.
On the growth side, focus turned back towards Europe and more specifically Germany this week as a faster than expected slowdown in the PMI activity data for June, and a surprise move to phase two of Germany's gas emergency plan highlight the difficulties facing Germany's dominant manufacturing sector and potentially the consumer through the second half of this year. Now we'll get inflation data for Europe with a flash estimate for June, where German figures will be a closely watched subset and retail sales data for March and the employment report for June will be keenly watched German data. Now just as the ECB have stepped up their hawkish response to changes in the inflation dynamic, faltering growth in its dominant member state, certainly from a credit perspective adds to the complexity here. One factor that may be relevant for both US risk assets sentiment and European especially German growth sentiment is China. And the recent positive or supportive pivot in both in terms of monetary policy and regulatory control are significant, so important to continue to monitor developments there.
Then finally back to Japan, this week has seen a nine year high in services activity and a second consecutive above target core inflation print. Swaps as opposed to JG B's at the 10 year, yield curve control target points have widened further, and the yen has weakened despite some pressure coming off treasuries and oil markets in recent sessions. And now monetary policy will continue to be a key focus for markets as the Bank of Japan remain an outlier in terms of its reaction function. And next week, we get the quarterly Tankan survey where a more upbeat assessment may pile further pressure on the Bank of Japan policy in flexibility. I suspect the Yen will play a big role in FX, volatility at least, and broader dollar sentiment in Q3 with the Bank of Japan policy at the very heart of it. So then inflation growth and policy very much at the heart of the current financial market debate and front and center and the data next week.
Thank you, Neil. Certainly some key themes to be watching out for in the week ahead. In the meantime, we have the weekend and may ask what are you going to be keeping your eye on there?
Absolutely. Yeah. Thanks, Matt. A little bit of a hiatus in some areas, week off for Formula One. But we do have the cricket, the finale of the short England versus New Zealand test series with England already two nil up in the series. The result is not in question. But with some cloud forecasts for the weekend, we may see some swing to liven up the weekend. And then the rest of it is really the focus ahead of the start of Wimbledon, when the sun's out, there really is no finer sporting spectacular. Now with the current food price inflation, however, I dread to think how much the strawberries will cost this year.
Thank you, Neil. Absolutely a gem in the sporting calendar, perhaps best not to think about the price of those strawberries. Well, thank you once again for outlining your thoughts on the week ahead. And we 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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