of the week ahead

Transcript

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 Jones, Head of Distribution for Eurizon SLJ Capital, and I'm joined by Neil Staines, Senior Portfolio Manager.

Welcome, Neil. Thank you for joining us again. How are you?

Neil Staines

Hi Matt, very well thank you. I hope you are too?

Matt Jones

Yes, excellent. It's another Friday and it's another May Bank Holiday. But before we get to that, looking to the week ahead, obviously all eyes are going to be on the US next week. But also slightly further afield, I think it's fair to say that there's some rather interesting data points coming out in the Far East. In particular, what are you going to be looking out for this week?

Neil Staines

Yes, absolutely Matt. I think there are a range of interesting events next week. Firstly, on the Bank Holiday, we have the PMI for May from China. Now, over recent weeks, activity in China has shown some disappointments, especially on the consumption side. Broader external demand has remained resilient, the property market has remained very strong, and headline GDP will therefore be very strong, certainly on a comparative basis. But if we add in the fact that the credit impulse in China has turned very negative, fiscal policies erring towards tightening and there have been questions raised about the impact and implications of the commodity price surge and how that impacts the China growth backdrop and what the official policy is in that regard. So PMI will be closely watched in relation to this. China is a dominant force in the global export or aggregate demand cycle, and therefore it's not just relevant to China and the Chinese markets, but also to the world's exporters and their respective economies.

Secondly, on Tuesday, we see the RBA meeting - the Reserve Bank of Australia. The backdrop for Aussie remains relatively positive. The iron ore surge over recent months has certainly been a big boost in terms of trade. Covid outcomes have been favourable. The reopening is ahead of most. The housing market is strong. The labour market has done better than expected. And so I think there has been modest caution, if you will, around the end of direct fiscal support in the labour market, but overall, there is a positive narrative. However, following a much more hawkish RBNZ [Reserve Bank of New Zealand] who were suggestive of rate hikes coming as early as next year in New Zealand, now we expect a slightly more balanced, forward looking expression of the risks in Australia. So I would expect the RBA to be more positive on the growth outlook, but still cautious on the monetary policy front. Obviously, they have the more complicated policy reversal to deal with in terms of a yield curve control; they currently have a three year yield curve control target at 0.1%, the same as the base rate or the overnight cash rate. So they have difficulties. The focus this month is likely to be around do they roll forward the three year benchmark or let that run down the curve? And we wouldn't expect any suggestion that there will be any rate hikes before the expiry of that in 2024. So still plenty of time there on very easy monetary policy in Australia.

And then lastly, the big event of the week, in many respects, will be in the US. We have the employment report for May, after the disappointment of April, which raised a lot more questions about the strength of the labour market recovery, about the supply and demand mismatch in the labour market, and how that ultimately resolves itself, whether the the fiscal support in the US of which we've seen suggestion that it's going to be boosted even further under the Biden administration, whether that is deferring demand for the supply of labour in this instance. So, by extension, with full employment as a core, even if asymmetric monetary policy target, then there's a big focus here on what this labour market dynamic, or underlying labour market strength, does for the prospects of monetary policy in the US and therefore to being a big impact on the yield curve and, of course, on the dollar and more broadly, global sentiment. So it's a big focus for us for the rest of next week.

Matt Jones

Fantastic, thank you, Neil. We've got the second UK Bank Holiday, which I really hope isn't as much of a washout as the first one. Anything in particular that you have planned or are keeping your eye on this weekend?

Neil Staines

Funny you should mention that Matt, I am very much looking forward to venturing back out onto the golf course this weekend - although I'm not sure that the Greenskeeper will be quite so excited about my presence. And obviously, the annual quest to find a barbecue somewhere that isn't raining, deferred from earlier this month. More broadly, though, there is a little bit of a focus for us; the culmination of the domestic football season - Champions League final, ironically this year between two English teams I have no preference over. So it will be interesting - perhaps a repeat of a penalty shootout, as we saw in the UEFA final. And then the French Open tennis begins on Sunday, something slightly different to focus on. I think Barty, Osaka and even potentially Serena Williams in the Women's, and then Nadal, Djokovic and Federer - who professed proudly that he is in the French Open this year as a warm up for Wimbledon.

Matt Jones

Absolutely. I mean, no better way to warm up for Wimbledon than obviously competing in another major. Thank you very much for that, Neil. I shall be joining you, I think, on the quest for a sunny barbecue, although I will not be venturing out onto the golf course because I think, as you say, no Greenskeeper needs that. Thank you very much, and I hope you have a fantastic weekend.

Neil Staines

Thanks very much Matt, and same to you.

Matt Jones

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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This communication is issued by Eurizon SLJ Capital Limited (“ESLJ”), a private limited company registered in England (company number: 09775525) having its registered office at 90 Queen Street, London EC4N 1SA, United Kingdom. ESLJ is authorised and regulated by the Financial Conduct Authority (FRN: 736926). This communication is treated as a marketing communication intended for professional investors only and is provided only for information purposes. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, with respect to any investment strategy or financial instruments, or the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this communication, save to the extent agreed in any written contract entered into between ESLJ and the recipient, and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication. Views are accurate as at the time of publication. Opinions expressed by individuals are their own and do not necessarily reflect those of ESLJ or any of its affiliates. The value of any investment may change and an investor may not get back the original amount invested. Past performance is not an indicator of future performance. This communication may not be reproduced, redistributed or copied in whole or in part for any purpose. It may not be distributed in any jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions.

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