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. Good to have you here.
Hi Matt, great to be back.
I think this is going to be the last in the current series for a couple of weeks as you have been allowed some some time off for good behaviour.
Excellent. Well, let's have a look at the week ahead. So I think as we're sort of taking a look forwards, focus really on global trade data, inflation and, perhaps closer to home in the UK, GDP data.
Yes, absolutely Matt, thank you. I think it's worth starting with the fact that despite the unseasonally inclement weather, there is a real air of summer in global financial markets at the moment; participation, trading activity appears pretty low; liquidity and stability, therefore, are a bit more of a focus than usual. But there are a number of events in particular interest for us over the next week.
Firstly, on global trade - and, by extension, the global economic recovery will be assessed, will be back in focus. China data for July kicks off the week and this data will be watched very closely. The export data more China relevant, perhaps; domestic economy focussed and particularly pertinent due to rising covid concerns in China. The import data may be a core focus for exporting nations, especially across Europe, and on that front we get the German trade data that follows on Monday and also the ZEW on Tuesday. Now, a second successive decline in the ZEW may set sentiment shifting towards European growth moderation, following on from the emphasis that we've seen in that regard in the US. Now, we expect the ultimate focus to shift towards equilibrium or sustainable growth rates, and in that regard, we see the US at the near term.
Staying with the US, Wednesday we see us inflation data. Now, it's not that long ago that inflation was the No.1 concern of global financial markets, but it seems recently growth concerns have kind of quashed those fears, even if we see some of these concerns as misplaced. For us, this sequential decline back towards a higher equilibrium rate should be a positive, given the nature of this mini cycle from covid, which was intentionally imposed. Now inflation is back on the radar next week. Yellen this week has been suggestive of the fact that inflation will fall back to the Fed's target by the year end. Now, we presume that she means the Fed's new inflation target, whereby that means somewhat above 2% for some time. Ironically, perhaps, the natural result of US inflation decline might be an increased focus on inflation shortfalls elsewhere: the most notable of which being Europe.
And on Thursday, the emphasis comes back to the UK with Q2 GDP. Following this week's Bank of England [meeting], the MPC (Monetary Policy Committee) forecast suggests somewhere around 5% for Q2. And indeed, the Bank of England economic narrative was much more encouraging; inflation now at 4% and falling back towards target in the forecast horizon, with growth at 7.25% this year and an increased forecast of 6% next. That's with unemployment forecasts lowered both this year and next. So the backdrop seems quite positive from the Bank of England's perspective. And just more broadly, a quick thought on the Bank of England, we have mentioned in our thoughts over recent weeks about the importance of the sequencing of monetary policy for the Bank of England. It does seem now that the Bank of England has lowered the rate minimum that it would like to see before reducing the stock of QE (quantitative easing) assets, and that is from 0.5 to 1.5, as it was previously. This is likely a function of the fact that negative rates, which are now essentially an effective part of the toolkit, lower the effective lower bound. The Bank of England have suggested that they may actively seek to sell bonds once the policy rate gets to 1%. I think overall what that means is, you know, we are starting to see the UK emerge as a front runner or a possible test case, if you will, in terms of global monetary policy, not just in terms of the covid reopening response.
Thank you for that, Neil, lots again to be looking forward to in the week ahead.
Before we turn our attention to events away from markets - and pre-empting the fact that there's Olympic activity going on over the weekend - don't forget to have a look at our companion to the Olympics and specifically looking at the emerging markets, which can be found at eurizonsljcapital.com/olympics
So that said - and teeing that up nicely for you, Neil - what have you got your eye on this weekend?
Wonderful. Thanks Matt. I think there are a number of events, we've been very lucky again. First up, the Lions tour of South Africa, the third and final test, the decider, if you will. Now, this promises to be an all out battle at every level and every position. There are a number of big changes to the Lions squad, but it should be a very intense and fascinating affair. Second up is the FA Community Shield - Leicester vs. Manchester City - ahead of the fascinating, if earlier than usual, start to the new Premiership season. It's also the start of the Championship, Leagues One and Two, and a huge number of FA Cup qualifiers up and down the country. So something at every level of football. And then finally, as you mentioned, the Olympics. It's the men's football final, not that it's been high on the profile of the Olympic Games. Tom Daley is up for a potential second medal in the individual event. And this time, we really do head to the track for some interesting and fun events like the 4x400 metre relays. That's alongside cycling, showjumping, boxing and modern pentathlon, to name but a few where Team GB has a medal interest.
Thank you, Neil. Yes, certainly a huge amount of activity over the weekend, certainly something for everybody. Well, thank you, Neil, again for joining us and outlining your thoughts on the week ahead. And we look forward to catching up with you again at the start of Series 2. Many thanks.
Absolutely. Thanks very much, Matt.
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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