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.

So looking into the week ahead, I think there are three sort of dominant factors on the on the radar. Arguably, growth, inflation and geopolitics. Perhaps you can share your thoughts on on each area as you look into the week ahead?

Neil Staines

Absolutely. Yeah. Thanks, Matt. You know, inflation and and the global economy will remain a core focus. Bank of England Governor Bailey addressed the feedback of sustained inflation pressure on growth this week in his testimony to a parliamentary committee. And it's this kind of multidimensional inflation, monetary policy, growth, dynamic or trade off that is likely to be a key focus through 2022. This week we see a global PMI data for January, and this should give some clarity or direction on economic momentum and the relative trajectories of manufacturing and service sectors, which is also important as the global economy begins 2022 in various states of Omicron restrictions. And now this data has the potential not just to highlight the global trend now, but also divergences within.

Australia. We get the CPI data. That'll be an interesting release this Tuesday with this week's impressive employment report, keeping rate expectations in Australia high. However, we see the underlying inflation pressure from both wages and importantly from energy as far less acute than other parts of the world continuing to question markets substantial rate hike pricing in Australia. Outside of this, the evolution of the debate on inflation and its proximity to a peak and the pace of subsequent decline will continue to be at the fore. Its implications for growth also key for central banks and market participants alike in 2022.

Secondly, geopolitics and domestic politics will continue to dominate the headlines. The saying a week in politics is a long time has been certainly true on a number of fronts this week, not least in the UK. Now, next week, we expect the release of the civil servants Sue Gray's report into partygate and the culture within Downing Street. Momentum to remove Johnson still feels insufficient at this stage although any evidence that the prime minister misled Parliament could change that very quickly. Most probable outcome now is a reshuffle of advisers and a commitment to change Downing Street culture, but still an event worthy of focus this week.

In Italy, the presidential elections will also be a key focus for next week. Now, the voting begins on Monday, although we expect the significance to increase as the week progresses. Votes four and five that occur on Thursday and Friday is where the event is expected to take shape with the prospective candidates and implied support less certain before then. The big question is for markets is will Draghi become the Italian president for the next seven years or remain prime minister for one and if he does become president, what are the implications for the stability and direction of the current coalition government? That'll be fascinating stuff next week. And then, of course, the situation in the Ukraine border will continue to dominate news headlines. Now with uncertainties and implications for Russian and Ukrainian assets, but also for energy markets and by extension, global inflation.

And then lastly, focus shift back towards the U.S. and the Fed now, with inflation around seven percent in December and the unemployment rate below four percent. U.S. monetary policy has started to look too loose for a US economy with a very fast consumer demand led growth. You know, we had Q4 nominal growth is around 15 percent in the U.S. and this is against the backdrop that the Fed is still doing QE, still buying assets, albeit at a tempered pace. But they are still easing. The January FOMC is expected to lay the groundwork for a March lift-off, along with stated projections that we get in March and retain as much optionality as possible for the rest of 2022, at least. Something along the lines that "every meeting is a live meeting". Beyond that, the market will be keen to hear any discussions or inference as to the size and timing of balance sheet runoff or QT. Now, all this is set against the backdrop of an uncomfortable equity market facing adjustments from non-profitable tech reassessment, from post-COVID adjustment to some areas or some sectors and rate normalisation adjustment. All three likely transitory. From our perspective, the three factors overall there to watch for next week that highlight the complexity of the current backdrop and the uncertainties in global financial markets at the start of the year.

Matt Jones

Thank you, Neil. A fascinating week ahead, especially from a geopolitical perspective.

Matt Jones

Well, thank you once again, Neil, for joining us and outlining your thoughts in the week ahead. We 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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