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 a new year and a new series, it's great to have you here with us again.
Thanks. Happy New Year to you.
And to you. So as we look into the week ahead and as we start with the first episode of the series, perhaps we we start a little bit sort of close too close to home with the UK before stretching our wings across key destinations. Perhaps you could outline your thoughts as you look into the week ahead?
Absolutely. Yeah. Thanks, Matt. First up it's likely to be a key week for the UK, not necessarily on the political front where we expect Mr.Johnson's COVID isolation and the wait for Sue Grey's Downing Street party report to likely minimise the debate. You know, as a small aside, on that front, it does not feel as if there is sufficient momentum within the Conservative Party to remove Johnson at this stage. More notable, perhaps no obvious candidate keen to challenge him at this uncertain time for the UK on many levels. But from an economic standpoint, however, it will be an active week for the UK.
On Tuesday, we get the employment reports from November, where there will be a keen focus on the unemployment rate that's expected to remain at 4.2 percent unchanged from October, and we get average weekly earnings estimated to continue to moderate on Wednesday. Headline CPI print, which is expected to tick up to 5.2 percent in December from November's 5.1 percent. That's still in letter-writing territory for the governor and then on Friday, retail sales activity. Now that's for December and rather more disappointingly on that front we're expecting down a half percent from a decent figure in November. Now these three releases will be key to the Bank of England's assessment of inflation, of the labour market and of an implied wage wage pressures and therefore of consumer activity more broadly. So that against the complicated backdrop of the Omicron restrictions. Markets expect a second hike in early February from the Bank of England, and these data releases will be key in framing that, so it's a big week for the UK.
Focus also shifts back towards Europe next week, and after the official warning at the end of this week that German GDP may have contracted in Q4, it sets a more cautious tone. High COVID cases or COVID rates likely continue to weigh on consumer activity, even if there are some signs of easing in manufacturing supply chain pressures. And we get the ZEW for January that will gauge the attainment of expectations of a broad bounce in economic sentiment into 2022 and ultimately economic activity. But the main focus is likely to be the minutes from the December ECB meeting. The December meeting delivered around a 90 billion euro effective uplift to the QE envelope in the transition from PEP to APP programmes with a transfer of some of the PEP flexibilities to the reinvestment programmes. This is likely a compromise between moving closer to normalisation with continued support for peripheral spreads. Now, the minutes will be watched closely for signs of divergence on the governing council and any explicit concerns from within. Markets will also be looking for further insight into governing council member views on the medium term inflation path crucial for future policy, especially when market pricing contains significant rate hikes over coming years.
And then lastly, the U.S. Now it's a very quiet week for data in the U.S. But the U.S. will continue to be the centre of the market debate. So far this year, we've seen further hawkish evolution of the Fed and extending that from December. You know, we have heard sooner and faster balance sheet reduction language, not least from Powell, and talk of four or even more rate hikes to come in 2022. So instead of turbocharging the dollar and FX markets, the dollar has indeed faltered so far. The coming weeks will be key to assessing whether the dollar backdrop is dented by the failure of further fiscal stimulus plans in the form of the BBB proposals from the Biden administration or potentially lower comparative growth in 2022, which is something that some houses have. Whether it's positioning or and M&A demand that have caused this transient dollar decline or other factors come to the fore. Now we maintain the view that U.S. yields continue to drift higher and steeper as the Fed plays catch up on inflation and the equities can absorb these higher level of rates given the very strong consumer activity, margin expansions against the current inflation backdrop. And while there is little economic data, the start of Q4 earnings season will be key for this equity backdrop, and we remain positive on that front. For the dollar, however, things appear to be more complex in the near term, at least. And this will be a key focus for us and broader markets. Thank you.
Thank you Neil. A key week for the U.K. in particular, and we look forward to to to watching as events unfold. In the meantime, it's the weekend and traditionally at this point, we we we take a break from markets and and discuss perhaps things more of a sporting nature. So as as the weekend approaches, what have you got your eye on?
Absolutely. You know, there are a few things on the calendar for this weekend in the week ahead. The final Ashes Test in England are trying to salvage some pride from a dismal tour Down Under. Tennis coming back to the fore with the start of the Australian Open, seemingly without a men's number one Novak Djokovic. But with Andy Murray, Norrie and Evans and Raducanu and Watson for the British representation. There's also some big Premier League games this weekend. We've got City vs. Chelsea at the top. Newcastle vs. Watford at the bottom. And the North London derby Spurs versus Arsenal. But for me, as is always the signal at the start of the year, and it starts in the countdown with a very exciting beginning of this year's Six Nations rugby, which starts in a few weeks.
Absolutely. 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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