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 back, Neil, it's great to have you here with us again.

Neil Staines

Thanks very much Matt, lovely to be here.

Matt Jones

So I think as you wrote in your your blog this week, we're pretty much seeing growth and inflation at an impasse. So as you look into the week ahead, what in particular are you going to be looking at?

Neil Staines

In this week's blog, we focus on the interaction and conflict between inflation and growth, the dominant macroeconomic theme at the moment, and as we look ahead to next week, the interaction or conflict between inflation both its direct impact on consumer demand, and the results of monetary policy response, and what this implies for growth are the key things.

Firstly, in the UK, we start the week with monthly GDP data for February. Now, recent survey data has been more promising in the UK as services activity outperformed expectations, as the removal of all COVID restrictions drove consumption through March. GDP data from February may be too early to capture this bounce, but will be closely watched with reference to pre COVID levels and the ongoing recovery. Later in the week, we get a reminder of at least one of the headwinds to that recovery with inflation expected to rise to 6.7% year on year, with core rising to 5.4%. The combination of these two factors is key to the Bank of England monetary policy response. The current cost of living squeeze adding to the near term tax rises to the inflation pressure and uncertainty in the near term demand trajectory will certainly give the MPC something to ponder over their Easter eggs over coming weeks.

Secondly, in the US, we also get growth and inflation focus next week, with headline CPI expected to have risen to 8.4% year on year in March, taking the core levels to 6.6%. This is keeping the market and likely the Fed speaker narrative firmly focused on the strength of near term monetary response. Now inflation is the key driver of policy in the US. And we expect the Fed communication to continue to be firmly aimed at convincing markets of their ability to counter the destabilizing threat of inflation. Indeed, we're also open to the thesis that fed communication itself is an important fed tool in tightening financial conditions now, ultimately such the action needed later may not need to be so restrictive. Now growth and excess demand appear resilient in the US, at least in the near term. And Thursday's retail sales data for March will be closely watched as one indicator of consumer resilience, at this current complex juncture.

And then finally, ahead of the long Easter weekend, we get the ECB meeting on Thursday. In Europe growth indicators have started to weaken due to the war. German ZEW survey for April on Tuesday will be an important update to both current conditions and perhaps more importantly, expectations in this regard. However, inflation data has started to sharply surprise to the top side. Recent prints have shown headline inflation at 9.8% in Spain and an incredible 11.2% in the Netherlands. Last week, two minutes show a re widening of divergence of views on the Governing Council. I think this is very important, with Chief Economist Phillip lane, likely the lead policy architect maintaining the likelihood that inflation will converge below 2% at the forecast horizon, a conclusion that's described as surprising and even puzzling by other members of the governing council. Next week's ECB meeting will be closely watched. But we think given that headline inflation continues to surprise to the top side, the message will be that normalization remains appropriate, emphasizing the importance of the fiscal expansion to support the growth and the near term risks, but expressing a renewed vigilance towards second round effects. It's certainly a big week for the ECB and the euro with the first round of the French elections to get the week off to a flying start.

Matt Jones

Thank you, Neil. A big week ahead indeed. In the meantime, though, and I know you're perhaps just a little bit excited. It's a bit of a big weekend and a big sporting event as well. So what have you got your eye on? If I need ask?

Neil Staines

No, you're absolutely right. Thanks very much Matt. You know we've got a full premiership schedule and accommodating with Manchester city buses Liverpool in what could be the the title deciding fixture on Sunday afternoon. Formula One moves to Australia, Ferrari and Red Bull Leclerc and Verstappen. One and two in the practice sessions. The main contenders for this year's title, as long as the Mercedes remains off the pace. That domestic cricket season gets underway county championships. Hopefully at some point, suitable cricketing weather will follow. But for me, as you alluded to, this weekend is all about the golf and the Masters tournament from Augusta. Some great players in contention after the first round, including Tiger Woods, and I certainly know what I'll be doing for evenings for the whole weekend.

Matt Jones

Fantastic. Well, I hope you enjoy. Thank you once again for joining us and sharing your thoughts on the week ahead. 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".

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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