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, 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 next week, I think we've got a varied set of data and areas of focus to be looking at. What in particular are you going to have your eye on?
Absolutely. Yeah. Thanks Matt. Yet another complex week for financial markets with DM Central Banks in the blackout period ahead of some very important meetings next week and a very light data calendar in the build-up or anticipation period ahead of those central bank meetings. Recent popular position to face some unwind pressure with downside missed to UK inflation, and a pushback against the Bank of Japan yield curve control adjustment, helping the dollar regain some ground. Now next week will be notable for the fact that we will get around 50% of the S&P reporting Microsoft, Google Meta, Amazon Intel Ford, GM, and Boeing among the names. But the clear focus for us will be the developed market, central bank action next week.
Firstly, in reverse order. We get to close the week with the Bank of Japan. Now, markets have been very keen to participate in the fallout from any adjustment from the Bank of Japan's yield curve control policy. However, the Bank of Japan have been increasingly clear that they see the current level of inflation, which is a significantly smaller breach of inflation targets than other developed markets central banks, remains transitory and that the Bank of Japan will, retain its maximalist easing policies. At least until they're more confident of hitting its price goal stably. Wording around the bank of Japan's thoughts on inflation and growth will be very important. But action much less likely in the near term in our view.
Secondly in the aftermath of the Fed, we get the ECB meeting next Thursday lunchtime. Our markets are fully priced for a 25 basis point hike, taking the policy rateto 3.75% but will likely be more interested in the signalling on rates beyond the summer recess. Core inflation edged higher in June after its final revision and is likely to stay elevated through July and August. In addition to that, the staff projections saw inflation above target at the forecast horizon with rates at 3.75%. Thus, we see it most likely that the ECB maintain a hawkish bias beyond July. The growth narrative would also be important, as will the debate around the future path of QT, plenty of variables for the market to focus on and an important event risk for next week.
Then lastly, but likely most importantly is the July FOMC, on Wednesday evening. Our markets are fully priced for a 25-basis point hike to a target range of five and a quarter to five and a half. But with no updated economic projections or DOTs to drive expectations, markets will be acutely focused on the wording of the statement and the inference of the press conference. Now, while 12 out of 18 Fed members implied a desire for at least one more hike, beyond July at the June summary of economic Projections, the recent downside missed to CPI, signs of continued rebalancing in the global goods and importantly labour markets, in conjunction with a maintained reference to the pace of policy action from the Fed leave us with a bias towards significantly more dovish interpretation of Wednesday's, FOMC. Even if the pronouncement of a peak in the US policy rate may need to formally wait until the September meeting alongside the renewed economic forecasts. We discussed these themes further in this week's blog but plenty to look forward two and to look out for from this week's developed market Central banks.
Thank you, Neil, as ever. A lot to focus on in the week ahead. In the meantime, though, I think we have an equally varied weekend ahead of us. What have you got your eye on?
We certainly do. We have another huge weekend of sport. The women's football World Cup is underway with the lionesses facing Haiti on Saturday in their first group match. Formula One moves to Hungary with Danny Ricardo back on the grid, it should be interesting. But for me, the attention will be split this weekend between the potentially weather disrupted crucial fourth Ashes test from Old Trafford and just down the road, the hundred and 51st Open Championship from Hoy Lake. Plenty of action to pass the time on what looks like a predominantly wet weekend.
Absolutely. I think there's something for everybody this weekend perhaps apart from sunshine. Thank you for joining us once again and outlining 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".
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