of the week ahead


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

Looking into next week, it's going to be a week I think, filled with as ever really with politics, data and central banks, a lot to be looking at and different things to be focusing on. Perhaps you can outline your thoughts.

Neil Staines

Absolutely. Yeah. Thanks Matt. It's it's another fascinating week in the global macroeconomic evolution and another important week for financial markets. Now, firstly there's lots to look out for on the political and geopolitical front. The week starts off with the US labor day holiday. It's synonymous with the end of summer and the return of deeper liquidity and participation. Sell in May and go away, come back after labor day, as the saying goes. Now, given the complexity of the current backdrop, it'll be very interesting to see how market sentiment evolves as capital returns to work or not. As the case may be against this theme.

We have domestic US politics heating up with the launch of a seemingly very divisive campaign from the Democrats ahead of the November midterms and in the UK, after what seems like many months it has only been two, the UK finally gets a new prime minister. Whoever it is, likely is Truss, we would expect a rapid evolution of fiscal support ahead of the energy price cap rise at the start of October, sadly, just one of many short, medium and long term plans and visions needed to re-enter re-energize and refocus the UK economy. Now all of this is against a still fractious global geopolitical backdrop, not least in relation to energy and commodity markets.

Now whether turning back on of Nord stream gas taps or not will also be a key driver of sentiment next week.

Neil Staines: Secondly, there are some notable data releases next week alongside the final global PMI data for August. We get the China Caixin services PMI. Now this is expected to dip back to 54 from 55.5 in July, still firmly in expansionary territory. now with Chengdu going into COVID lockdown as Beijing's zero COVID policy, continue at least until after the 20th party Congress on the 16th of October, Chinese growth momentum is a core driver of commodity prices and broader trade and risk sentiment, and thus a key focus for markets next week. We also get German industrial production. The industrial production data has held up better than expected considering the energy price bike on the dominant manufacturing sector in Germany. And at least in part, this has been due to alternative energy source production, leaving a complicated and even bifurcated growth dynamic within Germany. In the US services ISM will be the big focus with markets dominant concern still being inflation. It's likely that good is bad and bad is good, is likely descriptive of the relationship between us data and global risk assets enough to keep markets on their toes this week.

And finally it's another big week for central banks. The reserve bank of Australia are expected to hike 50 basis points to 2.35%. The bank of Canada expected to hike 75 basis points to 3.25%. But it's really all about the ECB from a global perspective. Now, following Isabelle Schnabel's hawkish commentary at the weekend session of last week's Jackson hole symposium.

Expectation have grown in relation to ECB action in the coming week. This week there's a string of more hawkish commentary from governing council members Eurozone activity, data that has been held up that has held up better than expected of late and an upside surprise to the preliminary August CPI data notably an acceleration of the core to 4.3% from 4.0% previously has led markets and analysts to expect a 75 basis point hike from the ECB from its current 0%. Now against an incredibly complex backdrop for the ECB where energy price, volatility, and supply uncertainty are acute, and imported inflation as a function of the drop in the Euro exacerbates the issue, the ECB will likely be wary of disappointing, elevated market expectations in this regard. Now the accompanying commentary, especially in relation to the growth and inflation trade off and the implementation. Of the TPI, the transmission protection instrument will also be of key importance against a rising rate backdrop across the region.

Tough times with central banks, critical viewing for markets.

Matt Jones

Exciting stuff. Thank you for joining us once again and for outlining your thoughts on the week ahead, 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".


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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.
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