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, as we look into next week, there's a fairly broad focus. So, what are you going to be having your eye on in particular?
Absolutely. Yeah. Thanks, Matt. It's another complex week for financial markets this week with the return of markets from the summer period at the end of the summer signaled by the Labor Day holiday in the U. S. And straight into a heavy period of corporate issuance in the U. S. that further distorted the debate about U. S. yields and term premium, given the very big discussions about medium-term growth, inflation, issuance, global reserves and fiscal trajectory in the U. S. Now with U. S. yields and relative global growth trajectories dominating the global macro backdrop, and all of this set against a G20 meeting at the start of the week, there are a few key focal points for us next week.
Firstly, and as we discuss further in this week's , next week is a big week for the UK. Now, following on from a much more balanced monetary commentary from Governor Bailey and Chief Economist Pill over the course of this week, where both gave a more balanced narrative around the risks to growth and inflation going forward employment and GDP data next week will be closely watched. We're inclined to expect further cooling of labor market and underlying growth momentum going forward with inflation and retail sales data either side of the MPC decision on September the 21st is less clear to us that the bank will be as inclined to fulfill even recently diminished market rate hike expectations.
Secondly, the global market focus will be squarely on the U.S. next week with Wednesday's release of the CPI for August. Expectations are for headline rates to edge higher on base effects, but for the core measure, the primary focus of policymakers to drop to 4. 3% from 4.7, a significant decline, big connotations for the policy expectations and for the bond market, particularly against recent volatility, essential viewing for markets.
Third, we get the suites of data from China retail sales, industrial production, fixed asset investment, and the unemployment rate, as well as the total social financing data for August. Now the recent weakness in China data had a significant implication for global markets with slowing demand, denting growth expectations for those countries most reliant on Chinese exports or supply chains of which there are a long list. Alongside the ZEW from Germany, markets will recalibrate their views in relation to recently dominant theme in FX markets. That is that slowing growth in the rest of the world and a resilient, if still below potential demand in the U.S. gives the U.S. exceptionalism or outperformance by default, thus supporting an already overvalued dollar.
And then lastly, by extension of this theme, and in its own right markets will be very attentive to Thursday's ECB meeting. Now at the last meeting in July, the narrative alongside a 25-basis point hike to 4. 25% was vague and data-dependent. Lagarde was clear to point out the uncertainties about the future rate path, suggesting that September could see a hike or a pause and that a pause in September would not exclude a hike at subsequent meetings. Now, data over the summer has been inconclusive, weaker growth on balance, but persistent inflation. So much so that the analysts are fairly evenly split between unchanged and plus 25 basis points and rate markets currently price in around nine basis points. A big focus for next week, not just on the rate actions, but also on the accompanying narrative. Plenty to keep markets on their toes next week.
Indeed, plenty to focus on in the week ahead in the meantime, however, it's the weekend I'd normally ask you, but I suspect, I think I know what you might have your eye on, but go on, tell us anyway.
I think you might, Matt, absolutely. There is plenty of sporting action this weekend. The Premiership football takes a break as the European Championship qualifiers take centre stage. Scotland, England, Northern Ireland, and Wales all in action throughout the course of the weekend. Cricket, England versus New Zealand, the one-day series gets underway. Friday in Cardiff and Sunday in Southampton. Formula One has a weekend off before Marina Bay in Singapore next weekend. But for me, this weekend will be all about the rugby. Starting with a huge clash on Friday evening, hosts France face the All Blacks both teams, joint favourites alongside South Africa. This is going to be massive. On Saturday, we have Ireland versus Romania and England versus Argentina. And Sunday, South Africa versus Scotland, and Wales versus Fiji. Not much chance of topping up my tan this weekend, despite the promised heatwave.
Absolutely. That is one heck of an opening match. And for our listeners in France good luck. Thank you, Neil, for joining us 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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