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 after a season ending hiatus we are back for the final season of 2022. And I think it's fair to say that we finished the end of last season on, I think as is tradition for most series, a bit of a cliff hanger. I think at the time Boris had resigned the leadership contest was was fully underway. And I think we're starting to see maybe signs of whatever British normality is creeping back into into market and into politics. But against that backdrop what are you going to be focusing on for the week ahead?

Neil Staines

Yeah, absolutely Matt. Plenty going on in the background, and I think this is really set against some structural shifts in the monetary dynamic globally as the global economy slows somewhat. Next week, central banks are at the center of the action following a very significant few days at the back end of this week for global monetary policy.

Firstly, the ECB will continue to be front of mind for markets as the Eurozone CPI print for October adds context to the ECBs new data emphasis in the monetary policy evolution announced at this week's ECB meeting. It was clear that the ECB gave themselves a more dovish optionality at the October meeting, indeed, three members voted for just 50 basis point hike. Despite the seemingly uniform narrative of 75 going into the meeting. Our view remains that 75 basis point increments are not just historically significant, but should be viewed as exceptional measures and not just in Europe especially when you consider this week's 75 basis point hike from the ECB took place against PMI in the forties and economic risks clearly to the downside to quote Madam Legarde at the meeting today. Now, indeed that sentiment has been echoed by some of the governing council members following this week's ECB meeting about the size of rate hikes. There are some more thoughts on the ECB in this week's blog. But suffice to say that given the more data dependent ECB data, thus becomes more of a driver of front end rate volatility, and CPI leads the way in this regards.

Secondly after an extremely turbulent period for domestic politics, as you refer to Matthew and fiscal expectations in the U K next week, markets will turn their attentions to the economics and the monetary projections. The Bank of England meeting has been longer awaited since the now infamous UK mini budget sparks huge volatility in FX and rates markets through the liability driven investment shakeout no less. The new Prime Minister, however and largely a new government have calmed markets, fiscal concerns at least in the near term and indeed, we now see the new Prime Minister and the new government have calmed market fiscal concerns largely guilt yields and sterling are back two levels pre mini-budget and sterling volatility structure is now back to pre mini budget levels as well. So that kind of risk premier, if you will, associated with the fiscal event now taken out of the market and indeed debt projections from the IMF for the UK look significantly more restrained and more manageable in the UK than most of Europe, the US and Japan just to put this into a global perspective. Now, but markets are still expecting historic 75 basis point hike on Thursday. Deputy Governor Broadbent's, recent comments that markets are overpricing, what is needed to bring inflation back to target were likely aimed at the term structure of market pricing or the terminal rate rather than November meetings specifically. But nonetheless, we would expect a divergence of views on the NPC next week, and for me it's a close call between 50 and 75. So with fiscal restraint the bias of the new Prime Minister and thus monetary and fiscal authorities working in conjunction with each other, not contrary to each other. The markets are likely to be more stable if less exciting going forward. Now all we need to do is find a way to generate medium term growth and productivity gains.

And then finally, the big event of next week will be the the FOMC. Now, after the implied pivot of the ECB following the actual pivots of the RBA and the Bank of Canada attention is squarely on the Fed. Interestingly, the RBA Bank of Canada and ECB pivots, for want of a better word are in large parts due to declining growth expectations both globally and domestic. However, all three of those have a singular mandate. They are inflation targeters. The Fed has a dual mandate inflation and full employment, and thus, potentially is more sensitive to slowing growth, particularly in the labor market where we've seen some recent encouraging jobs data the jobs decline being a perfect example.

So a tentative guidance towards a reduced pace of Fed tightening at the November meeting. Therefore seems ahead of two more jobs, reports and two more inflation prints to guide the December meeting. Alongside, renewed projections and economic forecasts now with significant implications for long rates and for the dollar and for global markets as a whole. Next week we also see the ISM data for October and the October payroll data to close out the week on Friday. All in all plenty to hold market's attentions as we move into next week.

Matt Jones

Thank you Neil, as ever, a lot to focus on with Central Bank action over the next week, which we look forward to watching unfold.

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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