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.
Thank you very much Matt. It's great to be here.
What a week it's been. A lot of action, of course from central banks. We've had the market reaction and of course, in this week's blog, which I would highly recommend listeners take a look at on our website, you address certain elements of that. But as the markets continue to react, perhaps you can peer into next week and just outline what you're going to be looking out for.
Yeah. After a huge week for financial markets next week offers a slightly calmer pace of economic data and policy decisions so pertinent in fact, with the events of last week, however that our first focus of next week will be on the ultimate reactions of markets across asset classes to the actions of the ECB and the Bank of England both individually and in concert. And of course the top tier data that we saw last week. We discussed the specifics of the Fed, ECB, and Bank of England in a little more detail in this week's blog. But suffice to say we expect that in concert the message was one of ultimately more caution about the balance of risks between growth and inflation going forwards. An acceptance that the significant cumulative net tightening of financial conditions is having and will continue to have through the lagged effects of monetary policy, a damping effect on consumer demand and business investment. Especially now, rates are restrictive, even if not yet sufficiently so under some current assumptions for policy makers we continue to believe the prospect of one and done for the Fed in 2023 remains likely. A concept that we first mooted in mid-December. The Bank of England has now joined that camp with the 50 basis points in January. But the ECB not quite there yet and are unlikely to continue into March. Now on balance, we continue to see the tacit acknowledgement of the proximate peak of rates against slowing inflation and growth continue to be a positive for risk assets and for bonds. If this does not prove to be the case, then market positioning likely has some work to do to catch up.
Secondly, separately for the UK this may come under more specific scrutiny next week EU/ UK negotiations over the Northern Ireland trade continue to rumble in on in the background but after the IMF criticisms of fiscal and monetary tightening on the UK growth prospects, there's likely to be further debate on the Bank of England's GDP upgrades last week against a raft of growth and momentum data at the end of next week. What is critical to the debate going forward, but not yet a central focus is the housing market. The UK fits into the global category of countries with high private debt and house price vulnerability, therefore against a real income crisis. RICS data this week won't make any many headlines but it's worth a look from our perspective.
And then lastly, we get the Reserve Bank of Australia next week. Australia is perhaps more of a complex case as the UK is at the moment with the latest retail sales and inflation data casting a troubling dichotomy for the RBA. House prices in big cities have fallen sharply over the past year and with some doubts cast over the validity, now of the most recent inflation data, it is not clear that the RBA will live up to market expectations of a 25 basis point hike next week. So with a number of central bank policy makers also speaking next week there will be, I'm sure, plenty to keep us on our toes across rates, markets, as well as equity and currency markets for next week.
Thank you, Neil. Still a busy week ahead and a start to the month of February. But in the meantime we have the weekend. I know it's been a very busy week for you and also for markets, but we deserve something to look forward to on the weekend. So what have you got your eye on?
Yes. Another action packed weekend football. We get a full premiership schedule after an FA cup break last week. Some big games for the clubs at the bottom as the relegation battle continues after the transfer window is closed. Interestingly in the transfer window, Chelsea spent more than the entire leagues in Spain, France, Italy, and Germany over the January window. There's something to be said about that, but really for me the big news, the big event over the weekend. The start of this year's Six Nations, Wales versus Ireland, Italy versus France to close down on Sunday and the Calcutta Cup Saturday afternoon England versus Scotland. Can't wait.
Wonderful. I am very much looking forward to the rugby as well. Cannot wait. 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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