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 next week, it's all about central banks and this continuing game, even if it is slowing a little bit, will they, won't they globally? So perhaps you can cast your eye into the next week and share your thoughts
Absolutely. Yeah. Thanks very much, Matt. It's been another complex week for financial markets with Q3 US GDP growth and ECB meeting driving sentiment and positioning against a still fractious geopolitical backdrop. We discuss our views of the dominant events and market drivers. The ECB and U.S Yield curve further in this week's blog, but the financial market events continue a rapid pace into next week, and there are a few key focal points alongside further earnings releases in the U S notably Apple on Thursday of next week that we'll be keeping a close eye on.
Firstly, we get a fresh round of top tier high frequency economic data from the U. S. Further key information on the growth and full employment side of the Fed's dual mandate. On the jobs front, it's that time again, Non-farm payrolls will be the key focus after the perceived acceleration in the September data in the U. S, markets are expecting a moderation this time round, but the pace of job creation and average hourly earnings against a broad consensus of significant strength in the U.S economy, perhaps even acceleration we would watch the unemployment rate closely currently at 3. 8% notably the median Fed forecast for year-end; thus, a rise, could have policy implications not just for November and December, but also into 2024. We also get JOLTs and ADP data that will give further colour on the state of the labour market and ISM data for both manufacturing and services will be closely watched for signs of faltering growth momentum going into Q4. It's a big week for U. S. data.
Secondly, it's a huge week for central banks, as you say, Matthew. Now, next week brings the Bank of England and the Bank of Japan. From our perspective, the Bank of England hiking cycle has likely concluded clear slowing, in labor market momentum and signs of weakening consumption more broadly should in conjunction with a likely sharply lower inflation print for October, as the energy price cap effects impact the headline, likely keep the bank of England unchanged even if some MPC members still see topside inflation risks, 6/3, the likely vote splits we see there. For the Bank of Japan, the balance of risks are in the opposite way around. More persistent inflation in Japan and a weaker Yen, a contributor, to this inflation at the margin, have seemingly become a factor undermining confidence in the real economy and thus consumption in Japan. Now, updated inflation forecasts from the Bank of Japan thus offer them cover for another step towards normalization, whether it is a further tinkering of yield curve control, or even a rate hike out of negative territory. This move from the Bank of Japan, which would be a shock to markets, but not as unlikely as market pricing suggests, from our perspective, we will be watching very closely indeed on Tuesday morning.
And then lastly, next week, it is also the turn of the Federal Reserve. Now, much like the ECB, the Fed are not expected to change policy at the FOMC meeting on Wednesday evening, but the narrative around growth and inflation will be the key focus, especially as markets will assume that the Fed has seen the data set, for the official releases on Friday, that's non-farm payrolls and services ISM as we alluded to earlier. The question-and-answer session will likely focus on the rate curve and the extent to which the Fed sees higher term yields as a replacement for rate hikes at the front end. And what implication has for the DOTS that as of September implied one more rate hike this year. Another big week for central banks, important for the US yield curve and the Dollar and possibly very important for the Yen.
Fantastic. Another interesting week in central bank land ahead of us. In the meantime, we have the weekend. And in spite of what a lot of people might think in England at the moment, given the rugby and the cricket, there is still some sport. So perhaps you can tell us what you're going to be watching over the weekend.
Yeah, absolutely. Thanks, Matt. Football we've got another a full premiership schedule after midweek European fixtures, some interesting mid table clashes, but the Manchester Derby likely the pick of the weekend games. Formula One moves to Mexico City. Mercedes will be hoping that they can keep up last weekend's pace without the technical infringements this weekend. World Cup cricket continues with Australia versus New Zealand on what might have been a huge clash in luck now between India and England and now just England salvaging some pride from the remaining fixtures. But for me, it's all about the rugby England versus Argentina for third place playoff on Friday evening, and then the world cup final on Saturday night, South Africa versus the All Blacks promises to be a hard hitting captivating occasion. We're very much looking forward to.
Absolutely that is going to be one heck of a final match.
Thank you so much for joining us and for outlining your thoughts on the week ahead. I look forward to catching up with you again soon.
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