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 Jones, 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

So next week as normal, we have a focus on central banks. And Friday of course will bring us non-farm payrolls hopefully slightly less anomalous than the last time. So perhaps you can guide us through next week and the central bank action that you're going to be keeping an eye on.

Neil Staines

Absolutely. Yeah. Thanks very much, Matt. After a relatively modest week in terms of data and events , next week holds a number of events whose outcome is critical to the dominant macroeconomic debate, the growth versus inflation trade-off, and implications for the monetary policy trajectory. But we have a number of things to look out for ahead of that this week. Firstly we get central bank action from the RBA, Bank of Canada and the Bank of Japan. Now, the policy trajectory decisions for the RBA is becoming increasingly complex. A sharply higher CPI print for December led the RBA and analyst forecasts to extend the hiking cycle, albeit against two weak employment reports, which have drawn the attention of policy makers. We would anticipate a more conservative or balanced narrative from the RBA ahead of further CPI and employment data after that CPI print this month has come back down sharply, as we watch employment data that may be indicative that the RBA are at or even beyond sufficiently restrictive. The Bank of Canada have more audibly stated, their preference to pause at current levels, that's four and a half percent. Recent inflation data is surprised to the downside, likely corroborating their stance any discussions on the evolving balance of risks will be a key focal point. Then finally, the Bank of Japan meeting on Friday with bank of Japan, the extreme laggard in the global monetary normalization process focus will be on the criteria for the start of normalization. Wage inflation has been held out as the key trigger even as core inflation continues to push the upper forecast limit. As the final meeting under Governor Kuroda, however prospects of a change of monetary setting likely remains low, but the meeting remains a core focus nonetheless.

Secondly, there'll be a big focus on official personnel and the resulted policy narrative in both Japan and China. In China this weekend we see the start of the two sessions where global markets will be looking for three key elements. Firstly further news on new government officials and or policy reform. Secondly, the official economic growth forecasts and any stimulus or policy change to achieve that and third potentially further in on, in the week any signs discussions on institutional reform. We expect a continuation of the U-turn over recent months that significantly improve the investment case for China assets. In Japan next week brings the vote in the Japanese diet on the appointment of Ueda as the new Bank of Japan Governor potentially also any further comment on his policy starts in a highly expected acceptance.

Then finally next week, it will all be about US employment ADP and JOLTS, job openings on Wednesday and non-farm payroll on Friday. Last month's shock spike in the non-farm payrolls was the trigger for a sharp repricing in US rates. However, it's clear that seasonal adjustments played a significant role in the outsized job gains witnessed. Indeed, ADP showed very modest job gains by comparison for January and JOLTS which indicated a widening of the jobs gap and thus indicative of the tighter labor market bounced strongly despite further falls in other comparable surveys. We have signaled our concern for the validity of the recent US employment data as a barometer for US economic strength. When so many other indicators show significant stress, in fact, we discussed this further in this week's blog. Whatever the outcome, US employment and the implications for US monetary policy will be the dominant focus for next week.

Matt Jones

Absolutely a busy week ahead and all eyes on Friday. In the meantime before we get to next Friday, of course it's Friday now and we have the weekend between us. I hear some distant rumbling. What have you got your eye on?

Neil Staines

Absolutely quite right, Matthew, yes. Another weekend off for international rugby and the six nations ahead of the final two rounds over subsequent weeks. We get cricket on Monday, the final day of three match series between Bangladesh and England after a blistering start from Sam Curran with the ball in hand in the second test. In football, another full premiership schedule with important games at the top. Manchester City versus Newcastle and Liverpool versus Manchester United the pick up the bunch. But for me this weekend is all about the return of Formula One. The first race of the season from Bahrain, Verstappen looks like a clear favorite again for his third consecutive title. Lewis is rumored to be off the speed at the start of the season, but don't ride him off just yet. It's promising another great season.

Matt Jones

A packed weekend of sporting action there. Very much looking forward to Formula one starting again, as I know you are as well. Thank you once again for joining us and for outlining your thoughts on the week ahead. I 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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