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.
So after a busy few weeks, I think this week is going to be a little bit on the quieter side in part of course, because any of our listeners across the pond will be celebrating Thanksgiving. But there are still some data releases. There are still things to be looking at. So what are you going to have your eye on next week?
Yeah, absolutely. Thanks very much Matt. I think financial markets have been very interesting from a macro perspective since the weaker than unexpected CPI print in the US just over a week ago. With signs of a changing second derivative of three of the major headwinds for the global economy this year. Inflation in the US, zero Covid in China and even the Russia, Ukraine energy situation in Europe. Now with more policy support for infrastructure in China, an additional factor, global risk backdrops should become a little bit more comfortable going forward, now by extension, if inflation and thus the Fed reaction function calms, alongside a more supportive risk backdrop, the Dollar can move from concurrent tails to the trough of the dollar smile, and thus dollar weakness. Now stability of markets over recent sessions with the dollar near the lows, risk near the highs and yields near the lows is encouraging for the sustainability of recent themes in the markets, and next week, maybe a key barometer of sentiment as the Thanksgiving holiday, as you say, concentrates the focus of the US into three days and perhaps reduces liquidity significantly for the remaining two. It'll be an interesting week to watch how positions growing and illiquidity drive or disrupt the emerging macro themes. So a lot to look out for in the week.
Secondly, from a data perspective, there are a couple of things to look out for. The RBNZ are expected to hike rates by 50 basis points to four and a quarter percent. But the market will focus significantly on the accompanying statement and or any guidance on the expected future path of rates. The RBNZ were early hikers. They were early to the rate hiking party, if you will. The property market has been weak for some time now, and a future calibration of monetary policy with restrictive rates and expected global growth slowdown will be a key inference, not just for New Zealand, but for other central banks and other nations too. Now more broadly, global growth will be back in focus next week, also with the flash PMI data for November, and both the trajectory of the manufacturing and service activities internally or domestically and any notable geographic divergencies will be keenly watched.
Then finally just as the US market's attention starts to turn to Thanksgivings turkey, we get the release of the FOMC minutes from the November the second meeting. Now while the statement highlighted a measured decision to reduce the active incremental rate hike, the press conference had a very different tone. The hawkish response to an arguably misleading question about asset price responses to the Fed action, drove a higher US yield, higher curve and a higher dollar. Now, it is possible, therefore, that the minutes outline a more balanced debate over the rate path given the lack of clarity around the impact of the long and variable lags, of the previous rate hikes from US policy. Not to mention global growth slowdown and supply chain improvements, and even perhaps the inflation miss written more recently. It certainly has the potential to impact on real rates. Now either way, the Fed Minutes will be a very key focus and a potentially volatile release as traders potentially adjust positions into a short window ahead of the Thanksgiving flight.
Thank you, Neil, an action packed weekend ahead of us. 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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