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

So whilst there is, as ever, a huge amount going on in macroeconomics and global markets. We are a little bit spoiled, I guess for this week, when it comes to the U K with a plethora of data and of course the autumn statement. So perhaps you can give us some insight as to what in particular you're going to be watching out for next week.

Neil Staines

Yeah, absolutely thanks very much, Matt. Over the last couple of weeks in the blog we've been discussing the evolution of the developed market monetary impulse. This transition from front loaded normalization, to a more balanced data dependent approach, as rates approach and in some cases exceed, estimates of the neutral rate and thus enter into restrictive territory. Now, after this week's critical US CPI data, something we discuss in greater length in this week's blog, there are some interesting global data points we're watching out for next week. We get the preliminary Q3 Eurozone GDP where we'll see how well the economy is holding up against the energy price, and interest rate pressures on the quarter, an important factor in the unity of the governing council for future rate rises. We also get the Australian employment report, US Retail Sales, Japan CPI and German ZEW on the month. But perhaps the most important interest will be paid to the monthly China data suite from October, where we get industrial production, retail sales, a fixed asset investment and unemployment. Progress will be very closely watched there. And this will give an important update as enthusiasm grows for a gradual lifting of Zero COVID policies over the winter. So plenty of macro focus in the global data next week.

However, next week as you keenly say, Matthew, is very much in many contexts all about the UK. Last week we discussed the historic 75 basis point hike from the Bank of England with specific reference to the context of weak underlying growth in the NPR projections. The Bank of England emphasized that rates will go up less than the market expectations and this is backed by an inflation projection that hits zero conditioned on market rates at the forecast horizon. However, this is increasingly delicate, balanced between inflation and growth on the requisite monetary stance, will remain complicated for some months. And the data revolution will be key. This week therefore, we have the CPI for October. Important as the Bank of England projections are based on a Q4 peak of around 11%. So downside misses there in conjunction with what we've seen in the US will be very important. We get the employment report for September. Again, tightness in the labor market and wage inflation is a key concern for the bank, so any movement there will be closely watched. Retail sales for October will shine a light on consumer demand following energy price hikes and potentially some added caution from notable interest rate rises on the month, particularly in the mortgage sector. And Rightmove house prices index to start the week likely show pressure building on the downside following a sharp drop in the RICS House price balance in October. All in all, a huge week for UK data and one which will draw the focus of markets and the Bank of England alike.

And then lastly with a G20 at the start of the week and a very important autumn statement on Thursday, politics and geopolitics will be back to the fore. In G20 we expect little of a headline nature from this week, but there are some very important dynamics evolving in geopolitics behind the scenes with the U S, Europe and China relations potentially all strategically volatile. The Autumn statement, however, will be a lot more public, Jeremy Hunt seems sets to unveil a string of fiscal tightening measures with the aim of ensuring public debt falls as a percentage of GDP over the next five years. We look for dividend tax or capital gains tax hikes. The top rate of tax hike and or a change in the equivalent threshold and the breakings of the pensions triple lock, importantly the last of those two were manifesto pledges, so we'll watch closely the public reaction, but all of those have been publicly mooted so far. Such measures may further come, gilt markets provided that they come with a seal of prudential approval from the OBR, but looking forward, it's difficult not to be concerned about where the investment for future UK growth, and more importantly, productivity gains is going to come from in the UK.

Matt Jones

Thank you Neil. A complex and data driven week ahead for us by the sounds of things.

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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