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 again in 2023.
Thank you very much Matt. It's great to be here.
So it's a new year but I think arguably still the triple threat of inflation, growth and monetary policy very much shaping the debate. So as we're at the start of the year and we are looking into next week, perhaps you can outline your thoughts as to what you're going to be looking at in particular.
Absolutely. Yeah. Thanks very much, Matt. The start of 2023 is very interesting. Markets have hit the ground running with some important ,albeit subtle evolutions ,to the dominant macro economic drivers. Now, if we leave the Russia, Ukraine, and wider Geopolitical issues to one side for just a moment. China reopening and inflation are both dominant in the current market dynamic and macroeconomic debate. This is the debate around growth, inflation and the interaction with monetary policy, as you say. Now, this week we've had the release of the inflation data for December from the US and while the indicators came in exactly in line with expectations that the market reaction was significant. Lower inflation expectations, lower terminal rate expectations, lower nominal rates, higher risk assets, and a lower dollar. Now, we discussed this dynamic further in this week's blog, but essentially the central macro debate is between the market's view on inflation, which is that it's coming down faster than we'd previously expected. And the Fed's view on inflation, which is that inflation is more persistent going forward. Underlying growth is likely the key differentiator between these two views with the Fed still in soft landing as their central scenario. Next week, we will get the start of Q4 earning season, with a host of banks, tech and industrials reporting and that will be very important and watched very closely, particularly with reference to any forward guidance or earnings projections, the implications of which for forward growth expectations will be significant for the market and the current macro debate.
Secondly from a more global perspective, the growth dynamic will also be brought into focus by the data from China and Germany next week. The monthly data sweep from China will be considered old news in some respects in light of the CCPs U-turn on Covid reopening, regulatory interventionism and support for the property sector. But the data will give an insight as to the base from which the reopening bounce can scale. Now in Germany, the ZEW index for January, will be closely watched to see how much better than expected growth as a function of lower energy costs over the winter has impacted forward-looking sentiment offset of course against a significantly more hawkish ECB.
And then lastly it's an interesting week for UK data with the latest employment report inflation reading and retail sales data. UK economic activity will be back to the four. In this week's blog, we touch on the monetary policy stance suggesting, that is not a zero probability prospect for rates to have already reached terminal levels in the UK as two MPC members Tenreyro and Dhingra voted for in December. And as would be my bias. However, markets are still pricing somewhere around a further a hundred basis points of hikes in 2023. So a very interesting dynamic there. The growth and inflation trajectories will be key going forward and this week's data will therefore provide an interesting and important insight.
Absolutely a fascinating week ahead and lots of data to keep us occupied. In the meantime though as as has always been our tradition we have the weekend coming up. And before I ask you to outline what you might be looking at, I think we need to cast our minds back to 2022 and the World Cup in particular. I think it's fair to say we, we got our portfolio predictions spectacularly wrong or at least the result. Any comment?
Yes. Yes. No, exactly. I think maybe we went a little bit too much with our hearts as opposed to our heads in the expectation of a Brazil, England final. However, when we extrapolate this into our fun world Cup portfolio the Brazilian Equities and UK Gilts have performed very nicely since the beginning of December.
Exactly. Now this weekend is interesting. We have a full premiership schedule culminating in the North London Darby arsenal against Spurs on Sunday afternoon. In rugby we have European challenge and champions cut rugby. And that is a, an interesting and fascinating forerunner ahead of the exciting action from six Nations, in a couple of weeks time. And then finally next week, sees the starts of the Australian Open Tennis with the rising British star Jack Draper facing Nadal in the first round. A great opportunity for him there.
Absolutely and fingers crossed for the home contingent. Thank you very much once again for joining us and I look forward to seeing how this year unfolds and hopefully a slightly more prosperous year ahead for us all.
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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