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, I understand we've got a big week for data next week. So, it's a good job it's Friday and there's only two days until Monday. What are you going to have your eye on?
Absolutely. Yeah. A huge week for data next week. This week has been another complex, if slightly quieter week for financial markets as we continue to digest the implications of the latest iteration of Fed guidance from the 1st of November. FOMC meetings against what is still an uncertain geopolitical backdrop. Now, with commentary from Powell and other board members towards the end of this week, a focus for markets, it's been increasingly clear, as we discuss further in this week's blog that the Fed are comfortable in having reached sufficiently restrictive rates, at least for now but also uncomfortable in emphasizing or favoring any near-term course of action, having been caught out by stronger inflation and stronger growth, over the course of the past 18 months. Now the broad market implications for future Fed policy remains key for the US and for the global economy. And on that basis, there are a few key events that will be focused on next week.
Firstly, it's a big week for the UK with earnings data on Tuesday, CPI on Wednesday and retail sales data on Friday. Now it's likely in our view that the Bank of England are comfortable with the current restrictiveness of rates and while this week's GDP data came in slightly on the positive side of expectations, the expenditure detail highlights a significant drop in domestic demand. Now this is a theme that likely shows through next week's data where notably base effects related to the energy price cap likely bring a sharp drop in the inflation data for October. Chief Economist Hugh Pill noted this week that developments in the real economy are weaker than forecast. Although, as yet, this weaker demand had not created more slack in the economy. Clearer signs of a slowdown in demand alongside loosening of labour market and an easing in price pressures will likely set markets widening their expectations of rate cuts in 2024 from current levels close to 75 basis points. So, a big week for the UK.
Secondly, in the wider global economy, the focus will be on the German ZEW data for November, released on Tuesday for any signs of stabilisation in Europe's biggest and currently most uncertain economy and all eyes, including those in Germany, where the implications are likely the most acute through global supply chain links, we get the October suite of data from China. Now, industrial production, retail sales, investment and employment data will all be closely watched for signs of rebuilding or rebounding consumer confidence and domestic demand. While the property sector remains weak, markets will be actively trying to gauge the impact of recent support measures, most notably the significant fiscal expansion on the outlook. Very important part of the global economic puzzle and a big focus for next week.
Then lastly, but likely most importantly, we get CPI data and retail sales data from the US. Now as Fed speakers become more balanced in their rhetoric, highlighting growth risks as well as inflation uncertainties, next week's data will be very important. CPI data in order to give the Fed confidence that the current level of policy settings is having the desired effect on inflation i.e. is sufficiently restrictive and retail sales as a first indicator of the progress of domestic demand profile going into Q4, especially with respect to the resumption, of student loan payments. Now the end of next week is also the stopgap bill expiration date and thus political negotiations and the risk of a government shutdown may add some volatility to the proceedings. Another fascinating week in the U. S. and wider financial markets.
Fantastic. Thank you, Neil. A lot to be looking out for in the week ahead. And whilst it may only be two days until Monday, those two days are important, nonetheless. What have you got your eye on?
Absolutely, yeah. Thanks, Matt. In football, after another week of European ties, we're back to another full weekend of Premiership action. Manchester United hoping to steady the ship at home to Luton. Chelsea versus Manchester City, though likely the pick of the action. Formula One gets a weekend off between Sao Paulo and Las Vegas. Almost the last roll of the dice for drivers to secure a second place in the Drivers Championship this year. But the highlight of the weekend is likely World Cup cricket. Now, I didn't think we would see England needing a win from their last game to secure a top eight finish in a 10 team competition, but that's where we are. A big game for England and Pakistan, who can secure a quarterfinal place with a win over England at the weekend.
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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