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, Neil. Good to have you back again.

Neil Staines

Thank you, Matthew. Nice to see you again.

Matt Jones

So as we look into the week ahead, I think there are quite a few points to touch on. I think it's fair to say that things are certainly heating up - certainly from the weather perspective in the UK over the weekend - but also, as we look into the week, potentially a bit of a slower start, but then a bit of a crescendo at the end when it comes to the data. As you look into the week ahead, what have you got your eye on?

Neil Staines

Yes, absolutely. Thanks, Matt. I think it's been a relatively complex week and a relatively complex period for financial markets with some familiar themes dominating the narrative: the growth outlook and growth differentials, amid what is intensifying concerns on inflation and on covid variants.

On the Monetary front, this week we get the minutes from the RBA (Reserve Bank of Australia) and the Bank of Japan. Potentially some interesting commentary on the Bank of Japan's recent foray into green loans and bonds, and in particular on the foreign denominated segment, their green bond purchases that was pledged just this week. And possibly some interesting thoughts on the yield curve control pledge from the RBA. It's going to be very interesting and very difficult, actually, I think, the communication around the unwind of the yield curve control as we move towards policy normalisation in Australia. So that may be of specific interest as well.

But the main column inches, if you will, will be occupied by the ECB (European Central Bank) meeting on Thursday. Following the announcement a week ago with the conclusions to the ECB's monetary policy review, you might have been forgiven for thinking that the July meeting would be a bit of a non-event. However, the monetary policy review essentially changed very little. I mean, mild changes to the analysis and implementation on climate and housing, but little really beyond a kind of semantic change to the inflation target, making it symmetric from close to but below 2%. But Lagarde's commentary at the start of this week highlighted a possible change to policy at the July meeting. So I think it's going to be a bit of a focus. We expect the ECB to address the transition from the PEPP programme - the emergency asset purchase programme - to the asset purchase programme, or the traditional QE (quantitative easing) programme at the end of March when PEPP expires. And I think that they want to give notification ahead of the summer recess, so I think that's really the core focus, likely pledging to maintain accommodation, at least while inflation remains well short of target policy horizon but we'll watch that with close interest.

Secondly, after a slow start to the week on the data front, Friday brings flash global PMIs for July. We've previously noted that the China growth moderation - and this is something that our analysis has discussed for several months now, but it's only recently being that more of a broad focus for markets - and the potential implications of this for economies that are dependent on Chinese demand. So global PMIs and the continuation of the global recovery story against a backdrop of changing or rising prices and rising covid rates and, you know, potentially the implications of a China slowdown, I think that's going to be a big focus for markets in the back end of next week.

And then lastly, back to the UK; UK retail sales on Friday I think will be an interesting, or moot, point, bringing together a number of specific themes that have been a focus of late. Firstly, the recent hawkish pivot from the Bank of England, I think is interesting and certainly worth a comment. Three independent MPC (Monetary Policy Committee) members this week - Saunders, Cunliffe and Ramsden - commented on the need, or the likely need, for the removal of accommodation in the UK relatively soon, also commenting on the discussion around potentially ending the announced QE purchases early before they expire at the end of this year. This goes against a large proportion of the market that were expecting the hawkishness of the Bank of England to dissipate with the end of Andy Haldane's reign as Chief Economist.

A recent surge in UK covid cases is a big focus - the UK retail sales will focus that attention - possibly a function of the UK testing more than the rest of Europe combined, but it's certainly a worry, the rise in cases as the UK is set to open its stage 4 of the opening process. This may possibly lead to a wobbling No.10, so look out for some kind of last minute retaining of restrictions, perhaps. Ultimately, though, we continue to see a firm, consumer led recovery in the UK and a currency supported by the MPC's newfound hawkishness. But a covid focus for the UK and particularly where now the UK has a high vaccination rate, that covid focus will draw the attention of the rest of the world.

Matt Jones

Thank you, Neil. As ever, plenty to be focussing on during the week ahead, obviously especially heating up towards the end of the week. Not to get too ahead of myself, but of course, the end of the week does see the start of the Olympics. But in the meantime, looking to this weekend, as the UK basks in what could be a mini heatwave, what have you got your eye on?

Neil Staines

Absolutely, Matt. Another great weekend for sport - we really are very spoilt recently. Formula 1 comes home even if football doesn't, and I'm not sure about the validity of that statement. But not only will there be the return of fans - I think we're expecting somewhere around 140,000 over the weekend at Silverstone - there'll also be the introduction of a new format, which should be fascinating. Saturday afternoon will have a sprint qualifying race that will decide the grid for the full Grand Prix on Sunday. Fascinating stuff.

Secondly, we have the Open Golf Championship at Royal St. George's in the UK. It looks set to be a fascinating conclusion with some incredible scoring in early rounds now on what may still yet prove to be a tricky golf course. The excitement will certainly be enough to keep me out of the sunshine on Sunday.

Thirdly we have rugby, British and Irish Lions back in action again with another warm up match ahead of the South Africa Test series. And the Tour de France runs through Saint-Émilion to end on the Champs-Élysées on Sunday, crowning the winner in the yellow jersey. Wonderful stuff there. Lastly, as you as you mentioned, the Olympic Games; it may be a year late, there may be no crowds, but I'm sure it'll prove to be quite a spectacle nonetheless. And Matt, it not be a Bank Holiday this weekend, but it looks certainly like it might be barbecue weather.

Matt Jones

Absolutely, very much looking forward to that myself. Well, Neil, thank you again for joining us and outlining your thoughts on the week ahead, and I look forward to catching up with you again next week.

Neil Staines

Thank you very much.

Matt Jones

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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