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 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, we are on the Eve of the Lunar New Year's Eve. And this year, it's the year of the Rabbit. At a point where we're seeing a rebound in China. I'll avoid all jokes about hopping back to growth. But we've got a rebound in China as in this post-COVID reopening era. But there's a lot more to look at, even though we're entering into a bit of a holiday period across Asia as a whole. So perhaps you can just give us an overview as you look into next week of the things you're going to be keeping an eye on.

Neil Staines

Absolutely. Yeah. Thanks, Matt. With the Chinese, New Year, this weekend and the public holiday next week, it's likely that the coming days, and especially as the data calendar is relatively light offer a period of reflection especially as moves so far in 2023 have been relatively significant. From our perspective, there are three areas where reflection is likely to concentrate next week. Firstly, it's becoming increasingly clear that the Fed are at the end of their hiking cycle. Analyst consensus still sees three more rate hikes, markets a little over two, and as we discussed further in this week's blog, now we see a rising chance that the end could be much closer than that, and that following the 25 basis point hike on February 1st the data is likely to increasingly question further rate hikes and the FOMCs resolve. Indeed, this week we have seen a more balanced narrative from Fed speakers, notably with Vice-Chair Lael Brainard to stating the case that the full effects of the rate hikes are still lie ahead and that while casting doubt on the link between wages and core services, X housing, at the current dominant policy focus at the FOMC. She stated that rates are in restrictive territory, that's an upgrade from other speakers of late. And thus, we are starting to see the impact of the Fed action on inflation. So certainly a more balanced tone there. Now this more balanced tone is likely to be exacerbated by the flow of weaker consumption data going forward. Prospect we have discussed at length, in terms of the concept of nonlinear demand impact of current and cumulative policy tightening on wealth effects and aggregate demand. Now, following the first of February FOMCs decision, a quick succession of January employment report services activity and then CPI could well, see growth concerns, counter the inflation concerns in the US. And ultimately changed the balance of risks at the FOMC between risks of hiking too much and versus doing too little. This week's Q4 GDP and December PCE readings may focus markets attention further. An important period of reflection for the US and by implication global risk sentiment.

Secondly in the Eurozone this week, we witnessed a headline that appeared to suggest the moderation and the commitment of the ECB to deliver on its December promise of a series of 50 basis point hikes. However, a commentary direct from Davos, from the governing council members and subsequently forcefully from president Lagarde, refuted any softening and reaffirmed the commitment of the ECB to head off core inflation risks with determinedly higher rates. Recent sentiment in Europe has been boosted by the stronger than expected economic performance in Q4, as moderate weather has driven energy prices lower through suppressed heating demand. Next week brings German IFO for January an important focus, now going forward is not clear that further energy reduction will be met with such output to resilience as de-industrialization pressure remains. However for now, momentum in January is expected to improve in the IFO data. Bringing some comfort to a determinedly hawkish ECB.

Then lastly, perhaps it is time to reflect on the global outlook. China re-opening continues at pace. Alongside the clearance, substantial support for the property and tech sectors. Analyst have rushed upgrade China growth forecast for 2023. Even as much of the rest of the world has seen near term downgrades. This conflict, or perhaps you could say balance, is an interesting reflection point for the global economy, global aggregate demand ,global inflation forces and ultimately global monetary impetus. Now we get the PMI data for January that will give a snapshot of global activity going into 2023 and important focus as we move into the year of the Rabbit, the luckiest of the Zodiac animals representing peace and longevity. Let's hope it's a happy one and a lucky one for financial markets.

Matt Jones

Absolutely. And of course we wish all of our friends, family, colleagues, and listeners in China, a healthy and prosperous New Year. So over the weekend, of course, a slight respite from markets and as is our tradition. Perhaps you can tell us what you have your eye on this weekend.

Neil Staines

Absolutely. Yeah. Plenty ahead this weekend again, Matt, we have a huge weekend for the premiership at the halfway mark of the season. West Ham and Everton in a relegation battle. Liverpool and Chelsea in a battle for European positions. And then Arsenal and Man United potentially in the title battle, so lots to fight for this weekend. Tennis and the Australia open continues, Andy Murray seems to be left carrying the British flag. Although potentially has a decent chance this year, given Nadals' exit and Djokovic's injury. Who knows that would be some some comeback. Elsewhere Eubank Jr. Versus Evans promises to be a boxing spectacle at the weekend. But I'm still containing my excitement for the start of the Six Nations in two weeks time. And perhaps seeking out some Chinese New Year celebrations in the meantime.

Matt Jones

Absolutely. That sounds like a fantastic idea. Thank you once again for joining us and for outlining your thoughts on the week ahead. For those who haven't already done. The latest blog from Neil is also available on our website. So, thank you Neil, once again, 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".

Disclosure

None of the contents of this document should be understood as constituting research on investment matters, or as a recommendations, advice or suggestions, implicit or explicit, with respect to an investment strategy involving the financial instruments discussed, or the issuers of the financial instruments, nor as a solicitation or offer, nor as consulting on investment matters, of a legal, fiscal, or other nature. All the companies of the Intesa Sanpaolo Group, its administrators, representatives, or employees, decline any responsibility (fault-based or otherwise) deriving from indirect damages potentially caused by the use of this communication or its contents, or in any case deriving in relation to this document, nor may they be consequently held liable for any of the above. The information provided and the opinions contained in this document are based on sources considered reliable and in good faith. However no declaration or guarantee is offered by Eurizon SLJ Capital Limited, explicitly or implicitly, on the accuracy, exhaustiveness and correctness of the information, and there is no guarantee that results, or any other future events, will be compatible with the opinions, forecasts, or estimates contained herein.

Views accurate as at the time of publication. Opinions expressed by the authors are their own and do not necessarily reflect those of Eurizon SLJ Capital Limited, Eurizon Capital SGR or the Intesa Sanpaolo Group.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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