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 it's that time of week where we get together to have a little look into the week ahead and perhaps uncover a few areas of interest that you're going to be looking at .With a lot of focus around the UK at the very least, within our home market and against what on paper appears to be, perhaps rather, a dire outlook. Are there any positives that you see or at least less negatives perhaps?

Neil Staines

Yeah, absolutely. Thanks Matt. Following on from this week's Historic Bank of England meeting which resulted in a 75 basis point rate hike from the Bank of England to 3% markets will be very attentive this week to the GDP data for September, at the end of next week. Now as you say, there's a lot of dire forecast, notably the GDP projections from the Bank of England. But the bank's projections highlighted expectations of this protracted recession in the UK from the current quarter through to the start of 2024. At the same time, inflation is forecast to peak around 11% this quarter and then fall sharply through 2023, likely in the second half of next year to just 0.8% of the forecast horizon under the current rate assumption that's with rates held steady in the modeling at 3%. Conditioned on market rate expectations, inflation falls to 0.0% of the forecast horizon. Now this is the area of good news, if you will. This is prompted Governor Bailey to emphasize that the bank's expectation that rates will go up less than it's currently priced by the markets, you could call it in some respects, a dovish hike. Curves have come lower, gilts, yields lower at the front end, the bank even stated that further hikes may be required as you infer some element of positivity among the dire forecasts. In fact the front end of the yield curve is very flat, at the policy rate and at that and with significant fiscal type needs to come at the Autumn statement, the case for higher rates is further diminished, despite the current inflation rates. Now inflation may be the market's predominant concern at the moment but as inflation corrects growth or lack thereof will increasingly come to the fore. So another important week for the UK and for Sterling.

And then secondly, this week we come back to the US this week's FOMC meeting grabbed all the headlines. The statement inferred, a tapering of the active policy increment or a downshift to a smaller rate hikes going forward as cumulative tightening, policy lags and economic and financial developments argue rates are closer to the sufficiently restrictive territory that the Fed seeks. Now Powell's press conference, however, urged more hawkishly towards the extended, if even slower hiking cycle as he reemphasized the risk of not doing enough still likely outweighs the risk of doing too much on rates. Now, from our perspective, however, the Fed have implicitly shifted to a more data dependent policy reaction function even if market sentiment now believes inflation persistence or structurally higher inflation has taken hold. A view that we disagree with. Falling inflation will push real rates sharply higher and thus further into restrictive territory. Now, I will say it again, the weakening economy and or labor markets, this likely has significant implications for further Fed policy action, and therefore data remains key. CPI on Thursday is critical, and the pick of the bunch for the next weeks action.

Then lastly next week brings the US midterm elections, Polsters are predicting Republicans regain control of both the house and the senates leaving President Biden hamstrung in any attempt to further implement the Democratic policy agenda. Midterms will be very closely watched across the globe and inference drawn for domestic stimulus and economic guidance as well as from a global geopolitical perspective. Certainly plenty of action to keep us focused next week.

Matt Jones

Thank you Neil. Certainly a lot to be keeping an eye on in the week ahead and I do very much appreciate trying to find at least some areas of positivity there.

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.

ESLJ-041122-P1

Subscribe to our insights

If you are interested in our content, please sign up below and we will deliver Eurizon SLJ insights right to your inbox.



    I consent to my data being collected and stored for the purposes of providing me information regarding my enquiry and related services. If you have any questions about your data please contact us at research@eurizonslj.com

    Envelopes on a wood background

    Our Research

    Our written research products aim to provide unique and orthogonal insights on key global economic and policy issues in a timely fashion.

    Aerial view of forest during  colourful autumn season.