of the week ahead


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, 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

Thank you very much Matt. It's great to be here.

Matt Jones

As ever there's a lot to focus on in the week ahead. However, is it really going to be focused on inflation and growth or is it growth and inflation? Where's the emphasis for the next week?

Neil Staines

Absolutely. Yeah. Thanks Matt. It's been another complex week for financial markets as a relatively few data and events outside of the ECB forum on central banking from Sintra meant that sentiment and positioning into the month end, quarter-end and half year end , at the end of this week, cause what in our view were some notable distortions. So the rates for markets, some of this, as you rightly say, is the shift. Some of this as we reach terminal rates and peak restrictiveness from global central banks is a function of the fact that we are shifting our expectations back towards growth and not just inflation. Next week, as we kick off July Q2 and the second half of 2023. We have a few key focal points to watch out for.

Firstly after last week's central bank conference in the Portuguese mountains, central banking and the inference for front-end and peak rate pricing will remain front and center next week. Tuesday, we get the RBA meeting where the broad expectation is of a 25 basis point rate hike. And this has been brought into question, however, by a sharp drop in inflation, in May with headline dropping to 5.6% from 6.8% in April, well below expectations. Now while central banks increasingly wish to stress that data dependence of policy, they will not wish to be seen to flip-flop on noisy macro data, 25 and a more balanced narrative, is therefore likely from our perspective. Next week also brings the FOMC minutes from the June meeting. Now in June, the Fed delivered a pause to reflect on the past tightening and likely to, alter or slow the pace of hikes to more closely monitor the credit impact of recent bank stress as activity continues to slow. Markets will pay acute attention to discussions on the inference of a change in the pace. And also the balance of views on the committee after Atlanta Fed Bostic has emerged as a candidate for the most dovish member of late. An interesting late night on Wednesday with the FOMC minutes.

Secondly, as central banks, more clearly approach peak policy restrictiveness. Markets increasingly focused on this, the growth part of the inflation growth trade off. Next weeks release of the US services and manufacturing ISM data, will be keenly watched in this regard for inference on the momentum of composite economic activity. Services momentum and price momentum will be key for sentiment, particularly after the disappointing service sector, momentum indicators from the European PMI equivalence just recently, particularly in France. We also get the final readings for Europe to confirm initial reactions, ultimately a big focus on the swing back towards growth next week.

Then finally, it's that time again, the non-farm payroll week now, as Powell emphasized the equity of the maximum employment and price stability aspects of the duel, monetary policy mandate of the Fed. At the past FOMC, and as the new SEPs revised down expectations for the unemployment rate, it is likely that monetary policy is more sensitive to weakness in employment going forward. Central or median market expectation is for a 200,000 headline payroll gain a tick down in the unemployment rate to 3.6% and a tick down in average, hourly earnings to 4.2% .Hot on the heels of JOLTs, challenger and ADP reports on Thursday. The backend of next week is all about jobs.

Matt Jones

Fantastic a big week, indeed. And last look out for. in the meantime when you have the weekend. And I think I already know, but what are you going to have your eye on?

Neil Staines

Absolutely. Yeah, it looks like the weather may be okay after all this weekend. Though may be not sunny enough for a barbecue. And as is so often the case the rain looks set to return for the start of Wimbledon on Monday, and remain mixed if warm for the full fortnight. Formula one is back with the teams traveling to Austria, podium places outside of Red Bull were the most interesting aspects of this year looks set to continue. But for me, this weekend's activities will be carried out against a soundtrack of the radio coverage of the second ashes test from Lords. Hopefully some of this well-timed clouds cover will help England with some much needed swing. It looks set to be a bit of a nailbiter this weekend, but thrilling all the same.

Matt Jones

Absolutely. And I'll definitely be keeping an eye on the cricket. Thank you, Neil, for joining us and for outlining your thoughts on the week ahead. I look forward to catching up with you 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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