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.
Once again, we are here to peer into the following week and identify things that you're going to be keeping a close eye on. As outlined in your recent blogs we're going to be talking about inflation and perhaps shift of focus towards growth. And then next week we've got the ever interesting and ever important data releases from the US, including payrolls. So perhaps you can outline your thoughts on the week ahead.
Absolutely. Yeah. Thanks Matt. After a brief quiet period while the U S and Japan take a break for Thanksgiving . Inflation is back on the agenda with the US release of the PCE data for October. Now ,with the C PI missing substantially to the downside in the October print at the core PCE, the Fed's preferred inflation gauge will be watched very closely. And our fore handle on the announcement on the annualized, likely exacerbates the current ebbing of the inflation risk Premier and can certainly see recent financial market trends extend. However, as we discuss, as you say, Matthew, in the blogs this week more specifically for the US under their dual mandates for monetary policy, the impact of the trajectory of growth, on monetary decisions is likely increasing as the top side tail risks to inflation appear to have diminished significantly, with forward supply and demand projections coming back into better balance. If as we expect inflation continues to trend lower towards target, we expect the resultant higher real yields thus the restrictiveness of monetary policy to weigh on the new focus of Fed monetary policy, the terminal rate expectation.
Secondly, in terms of global growth we get some interesting data next week. Retail sales in Australia and Japan may give more clarity on the strength of discretionary spending in the face of higher prices and higher rates in Australia, and more organically in Japan, given still low inflation and extreme monetary policy settings. Next week also brings unemployment and CPI from Germany, while US inflation is showing clear signs of topping out ,inflation in Europe looks a little bit more persistent in the near term and markets will be keen to see if a higher unemployment rate is the pressure release in Germany. Finally China PMI for November will be very keenly watched for the net impact of conflicting macro impacts at the moment at the current juncture. More support for infrastructure and property sectors on the one hand, and the impact of near term COVID case rises to new pandemic highs on the other. Lots of watch for with growth emerging as the new dominant focus.
And then lastly we get the dominant factor of the week. The big data of the week is the US employment. Now this comes in three parts this week. ADP on Wednesday may give an indication of the momentum of the labor market going into the end of the year. However, is not always had a reliable correlation to payrolls, jolts job openings will be keenly watched, to gauge the prospects of US soft landing. The thesis being that if the labor market adjustment can come in the form of reduced demand for labor via reduced job openings, then wage pressures can be brought back into line without significant layoffs. So jolts will be key to that. And finally we get the flagship high frequency US data release, the non-farm payrolls. Markets are expecting an unchanged unemployment rate at 3.7% and for the economy to have created 200,000 jobs with the average hourly earnings ticking down to 4.6% annualized. Now, recent headlines may suggest downside risks to the headline and to upside risks to the unemployment rate, we will be watching very closely. Huge focus, potentially huge implications for the Fed, and it's dual mandate and for markets globally.
Absolutely. Non-farm payroll week is always an exciting week, so I very much look forward to that. In the meantime, we have the weekend. But before we delve into what you might have your eye on, I've got a World Cup related question for you. So if you were to look at your World Cup views through the lens of asset allocation, what would your portfolio look like?
It's a great question, Matt. A tricky one, I think certainly judging by some of the results that we've seen so far in the tournament, you would need a diversified portfolio. Perhaps wouldn't quite go so far as to Saudi Arabian assets, but certainly there'd be some gilts, in there. I think you would be foolish not to have the odd bund or two. I would focus, a healthy chunk of long Brazilian equities. And I think that you would also need some OATs for France and also some Spanish bonds in there. I think that should just about cover the eventualities.
Okay, thank you for that. And of course as ever not investment advice perhaps not wise to construct your portfolio around World Cup results. Absolutely. Very much looking forward to the rugby as well. Thank you once again for joining us and for outlining your thoughts on the week ahead. I really 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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