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.

So looking into the week ahead, there's certainly enough to keep us interested, whether it's from the Bank of England later in the week or indeed the Fed. So as you look into the week ahead, Neil, what in particular are you keeping an eye on?

Absolutely. Following on from last week's Fed meeting and the unexpected hawkish pivot in many respects - this is something that we discussed at greater length in the blog on our Insights page - we see a change in the focal point of markets from that. I think that's quite interesting, especially in relation to differentiation, one of our core recovery themes. This focal point shift away from the near-term relative rebound momentum, which is more a factor of the chronology or the relative reopening pace, and towards an expected sustainable long term growth rate. So where we think the economies fit in with each other in the broader hierarchy. And by extension, terminal rates, where the level of terminal rates fits in. And I think that has changed the dynamic, not just focussing on the adjustments or minor adjustments to QE [quantitative easing] purchase pace, but actually to where rates ultimately will end up and the strength of longer term economic sustainable expectations. This may have changed the emphasis and maybe even the reaction function to some of the high frequency data. So I think that kind of lends itself to a bit more of an intense focus on some areas of economic data.

On Wednesday, we get the first release, or the flash PMI data for June. I think this is going to be very interesting as a gauge of the updated momentum in the global economy; but also an update to some recent signs of the potential peaking in reopening momentum. And again, this goes back to the point about sustainable levels of growth and where we ultimately end up. Europe will be a core focus, especially in conjunction with the German Ifo on Thursday. And I think it's not just the ongoing reopening momentum that will be a focus, but how manufacturing sentiment is responding to recent signs of growth moderation in China. After completing its V-shaped recovery, we now expect something more L-like going forward in China. The sustainable growth rate will continue to be relatively high. But this may be consistent with a slightly modest easing over time in China. And I think, you know, that's particularly important to areas of the global economy that are reliant on exports to China and Europe is a key focus in this regard.

Then on Thursday, emphasis shifts back towards the Bank of England. Following the reduction in the purchase pace of QE in May - although not a taper, as the government suggested - expectations of the Bank of England are relatively low in this coming week. With no new updates to forecasts or changes in the purchase pace, we expect no change to policy or to the forward guidance in the statement. However, the data has been strong. April GDP in particular has been good. The high frequency consumer data has been very robust. So the commentary is likely to be more upbeat, and I think that's broadly where the hawkish surprise came from in terms of the Fed and that was confidence in the recovery. That's something that been sadly lacking for many, many months or quarters across the global economy. One caveat, however, in the UK, is the slightly disappointing Delta variant resurgence or the resurgence of the virus, and whilst this is unlikely to have a material impact on growth forecasts, it may add a slightly more cautionary uncertainty tone to the forward narrative.

And then on Friday, we shift focus back towards the US, and May PCE. Given the importance of the core PCE forecast in the Fed's Summary of Economic Projections, this is going to be very closely watched. In fact, the hawkish change in the Fed dot plot relative to a modest core PCE overshoot in 2023 was a key focal point for last week's Fed and likely an ongoing focal point for gauging the Fed's reaction function to inflation overshoots going forward. And I think, more broadly, we can also say that the implications from the Fed were quite significant in more the high beta or the more sensitive areas of emerging markets. I think that particularly in conjunction with our focus, or the move of the focal point of the market, towards terminal rate, this is going to have significant implications for EMFX and differentiation within the markets that we see. For example, we think the rapid hiking cycle, high valuation and positioning can support Brazil against this backdrop, at least relative to Mexico, where despite a more prudent fiscal setting, positioning and valuations are more stretched and a hiking cycle is less pronounced. So I think there are some interesting market opportunities arising from the data renewed focus.

Thank you, Neil. Indeed, lots to be keeping an eye on in the week ahead. In the meantime, though, I think it's fair to say there's as much interest - potentially more - in the weekend. So in spite of any of the beautiful British summertime, what are you going to have your eye on this weekend?

I think if ever there was a weekend when you could be ambivalent to continuous rain, certainly from a sporting perspective, this just might well be it. I even go so far as to say that there's a beautiful British irony in the fact that Monday is the summer solstice, the longest day of the year, and it's likely to be filled entirely with rain. But over the weekend, we've got a continuation of the European Football Championships and the move towards the final group matches where the exciting knockout stages can begin. The US Open Golf also takes place, at the stunning Torrey Pines in San Diego, what a beautiful course that is. And then the Formula One is off to France, after the controversy of the Azerbaijan Grand Prix last weekend. So plenty to keep you occupied.