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.

Hi Matt.

With signs of recovery around the world increasing, I think it's fair to say that whether it's on a personal level or looking at markets, there's certainly signs of of optimism, of expectations of a continued recovery, especially closer to home when it comes to the UK. As you look at the data in the markets Neil, are you seeing that data is matching expectations?

Hi Matt. Yes, good point. Looking to next week and to Europe, we're going to be quite heavily focussed on the German ZEW release for April.

What's interesting there is that there are two components to the index: expectations and the current situation. Now, both are expected to rise this time around. That's not the core focus. But up until this point, current situation has clearly lagged significantly behind the expectations component. There's been a key feature of the recovery so far; very much expectations led where the survey data, if you will, has outperformed the hard data. And more broadly, commentator expectations have been very strong. And really now it's time for the economy to to live up to the reality. It is worth noting, however, that recent German data actually in March has been a little stronger; there's certainly some signs from retail sales, factory orders and export data all from March. So that is more of a positive progression. Recent expectations on European growth are very positive. So we'll be looking to see how this catches up.

One point that I want to make on this, following on from the Bank of England [meeting] this week, where the Governor was clear to point out that the reduction in the pace of asset purchases under the QE programme did not amount to a tapering in the traditional sense on the basis that the bank was still committed to buy the full envelope of promised QE purchases - I think this has particular relevance to Europe. Now, despite the fact that there are now strong expectations of a solid recovery in Europe, perhaps expectations that this growth upgrade leads to a tapering of purchases under the PEPP programme in Europe is maybe a little bit ahead of itself and maybe, as [Bank of England Governnor] Bailey would suggest, a slight mischaracterisation of the situation.

Staying with the UK, following on from the Bank of England upgrade to the growth forecast - quite a significant upgrade for 2021 from 5% at the February Monetary Policy Report to 7.25%, so quite a big pick up - as well as what was essentially a significantly improved view of the labour market as the extended furlough schemes dovetail quite nicely with the pick up in demand and re-opening of the UK economy. So that gives a much better balance of medium term risks, a more comfortable situation for the Bank of England.

But next week we get the Q1 GDP release; it's expected to be a negative number, it's expected to be the low point of the year. And we'll see really from a broader perspective what level the base is at for [Bank of England Chief Economist] Andy Haldane's coiled spring release. Rather interestingly, Andy Haldane emboldened his hawkish credentials in what was essentially his penultimate meeting as Chief Economist of the Bank of England by dissenting on QE in favour of a £50 billion cut to the envelope - so a reduction in the amount of assets to be purchased - as a function of his view that the recovery is going to be very strong and that underlying demand is strong and therefore, inflation pressures to pick up going forward. So I think that's quite an interesting point.

Perhaps, on the flip side, Bailey was a little more sanguine on the prospect of rate hikes in the fact that he played down the fact that while inflation is at target, at the forecast horizon, under the conditional assumption - which is assuming market implied rates and the market is implying two rate hikes over the period - Bailey actually played down the prospects of those as a fine judgement over that period and not a validation of those hikes. So on balance, we hold a very positive view of the growth backdrop in the UK, but officials still pushing back on any near-term rate hikes.

And then lastly from me, on the inflation front, we're seeing increasingly discussions of inflation appearing more broadly; the copper price, iron ore, even lumber prices, which have had quite extraordinary rises of late, have brought inflation right back to centre stage. Interestingly, recent rhetoric from some of the Fed speakers has wavered a little bit on their commitment to the fact that inflation is clearly transitory. And so perhaps a little bit of wobble on their commitment to that.

CPI in the US is expected to rise to 3.6% in April. That's from 2.6% in March. And that's not really in keeping with the 'somewhat above for a period of time' narrative that fits with the Fed's new flexible average inflation target, and any persistance at these lofty levels is likely to bring slightly more ambiguity, I would imagine, from Fed speakers and a little bit more discomfort to markets. So inflation is definitely something that we're focussed on.

Thank you, Neil. Plenty to be looking forward to in the week ahead. As we come into the weekend, I feel a need to reference last week's episode, perhaps to offer condolences both to you and obviously to Southend who sadly have ended their 101 year run in the football league. Very unfortunate, sad times. Looking to this weekend, though, outside of markets, what have you got your eye on?