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.
So last week we were talking about how, perhaps a bit of a quieter week with Chinese New Year and a holiday period in many markets, whereas I think looking into next week, we are back with a vengeance, really. A big week for data next week, a big week for policy makers and how that data plays into policy decision making. Perhaps you can outline what you are going be looking at in particular over the course of the week.
Absolutely, you're right Matt, that next week is a huge week for markets and for the global macroeconomic picture. Not only do we get important monetary policy updates from the US, Europe, and the UK, as you say but we also get earnings reports from Apple, Google, Amazon, Meta, Ford General Motors, and many others. And US ISM, both manufacturing and services, JOLTs, job opening data and the January employment report for the US as well as Eurozone CPI estimate for January. A huge amount of information for markets to assess and a stark contrast to the relative quiets of the past week. Something clearly reflected in respect to volatiles surfaces.
Now firstly the dominant focus of the week is undoubtedly the Fed. Now while there are no updated dots or SEPs we'll have to wait until March for that. And the clear signs of a further reduction in the active policy increment, and ultimately a clear consensus expectation around a 25 basis point hike. The market will be actively focused on the Fed narative, surrounding the trade-offs between inflation and growth on the path of interest rates going forward. Now, we've discussed over recent months, our view that 25 basis points in February and a pause in March is our central bias as growth and inflation both decline into 2023.
Next week's FOMC will be a key step in the process as will the raft of key data, between the February and March policy meetings. We continue to see non-linear downside risks to demand through the rundown in pandemic excess savings, the negative wealth effects of declining house prices and even through the labor market via hoarding. Ultimately, however, the market reaction will depend on the FOMCs interpretation of the evolving balance of the growth and inflation risks. And thus their evaluation of the proximity of the sufficiently restrictive rates level that they are seeking. In Europe, it is likely much simpler stubbornly high core inflation led to the ECB to commit to a series of 50 basis point hikes at the December meeting and this intention has been subsequently reaffirmed by Lagarde and the senior governing council members Davos and beyond. Now, there is a possibility that QT discussions are more integral to the debate for future policy. But ile the trajectory of eurozone rates has very significant consequences for financial markets and adds positive inertia to the Euro it's likely that the ECB decision next week is the least likely to surprise on expectations.
Then finally we get the Bank of England where the policy decision is perhaps the most complicated as likely inferred by the three-way splitting, voting, unchanged 50 basis points and 75 basis points that we saw at the last NPC meeting. My personal view is more aligned with the Dhingra camp that's the current bank rate is sufficiently tight given the weakness in the economy and likely significant impact of past cumulative rate hikes, not to mention fiscal tightening and the impact of the inflation rate itself in damping future demand. The hawks would argue that the recent persistence in wage inflation and price components of other high frequency metrics argue for a further more forceful response from the bank. Now against this backdrop we expect Governor Bailey's proposition to be a hike of around 25 basis points. All three outcomes unchanged 25 and 50 are distinctly possible. We discussed this central bank preview further in this week's blog. But to reiterate, next week is a huge week for the monetary policy and macro backdrop evolution.
Thank you Neil, a huge week indeed for data and for policy makers and central banks. I'm certainly looking forward to next week's blog to see what you make of it all. In the meantime, we have the weekend. So perhaps you can cast your eye over the weekend and tell us what you are looking out for in particular.
Absolutely. Yeah. Thanks Matt. While I wash and press my rugby shirt in preparations for the start of the Six Nations next weekend there's plenty else to grab my attention this weekend. The Australian Open Tennis reaches a conclusion with the finals over the weekend. England Cricket team are back in action this weekend with the first two one day international matches in South Africa Jofra Archer's return after almost two years making the headlines. And then in the football, it's FA Cup weekend kicking off with Manchester City versus Arsenal on Friday night. But the FA Cup is really all about the underdog. Stevanage, Wrexham, Fleetwood, Preston and Accrington Stanley will all be watched closely over the weekend.
Accrington Stanley, who are they?
Thank you for joining us once again, Neil, and 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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