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 Aiste, Sales and Marketing Executive 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 Aiste. It's great to be here.
So, it looks like we've had a busy week, but looks like that momentum is going to keep up. So, what have you got your eye on for next week?
Absolutely, yeah. Thanks, Aiste. Yet another complex week for financial markets as the quiet start from an Independence Day interrupted week evolved into something notably more volatile. Following the array of US labour market indicators into the close of the week. The better-than-expected labour market data in the US in general has continued, and while we disagree with the consensus views that this implies continued inflation pressure and thus further policy activism from the Fed, there is no doubt that this data has brought with it acute volatility in the US and by extension, the wider developed market rate space. Next week has the potential to be just as volatile, and there are a few focal points we watch out for in particular.
Firstly, there will be a renewed focus on the UK. Recent inflation persistence has led to a more hawkish, more activist approach from the Bank of England. Despite the fact that last week saw little UK data. Yields continue to surge in line with the US and global curves, now pricing a very aggressive rate hike cycle in the UK excessively so in our view, as we discussed further in this week's blog. Now next week's employment and GDP data from the UK are perhaps a timely reminder, if likely still a little premature, that significant monetary tightening, as well as the tightening effects of high nominal prices and high tax rates, will undoubtedly slow aggregate demand in the UK. A difficult balancing act for the Bank of England ahead. A key data to watch for.
Secondly, next week also sees the start of Q2 earnings season in the US, with a raft of banks reports on Friday. Markets will be keen to look at the forward earnings expectations and of course trading revenues. But in addition to that, the Inference of bank credit provisions and expected trajectory of lending going forward will be very important in terms of market pricing of this sufficiently restrictive Fed terminal rate level, given the current aggressively hawkish pricing, from markets in relation to the Fed. An important start to Q2 earning season.
And then finally after jobs last week, the focus turns to the other side of the Fed mandate next week, price stability, with the US CPI print for June. Now, markets expectations offer the headline level to fall back to just 3.1% and core a little higher at 5%. Again, we discuss this a little further in this week's blog, but we remain of the view that disinflation remains dominant through the rest of the year and with rates firmly in restrictive territory and growth below trend, if not currently negative. The case for further policy tightening remains weak in our view. CPI will be key to the US rate pricing and the US rate pricing key to all global asset classes at the current juncture. In short, essential viewing for us.
Thank you very much Neil, in the meantime, we have the weekend. What have you got your eye on?
Absolutely. Yeah. Saturday brings us some very interesting southern hemisphere rugby with South Africa versus Australia and Argentina versus New Zealand. Preparation for the fast-approaching World Cup in France later this year, but with the weather undoubtedly playing a role in the weekend's action our focus remains firmly in the UK. It's middle Saturday at Wimbledon where umbrellas might be more popular than strawberries. Formula One teams are also in the UK for the British Grand Prix from Silverstone, Hamilton will be very keen to make the podium in front of a home crowd there. But for me this weekend is all about the crucial third Ashes test from Headingley, a good start from England but on a lively pitch there is an outside chance we may settle for rain instead of the active that the Aussie bowling attack, as the weekend evolves.
Thank you very much, Neil. A lovely weekend indeed. Thank you Neil, for joining us and sharing your thoughts on the week ahead. We 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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